Petroamerica Oil (TSX:V.PTA, Stock Forum), on the cusp of a game-changing vote by Suroco Energy (TSX:V.SRN, Stock Forum) in regards to the company's friendly takeover bid of Suroco, got some love today in an international E&P review report from equity researchers at TD Securities when they raised the company's target price to $0.60 per share and slapped on an AL BUY rating.
According to the report, compiled by Jamie Somerville, Shahin Amini and Soheil Sharifi, Petroamerica was highlighted due to its relative valuation, high netbacks and potential for free cash flow generation as well as a number of high-impact exploration wells planned for the next 6-9 months.
Petroamerica's target price was based on the combination of the company's base NAVPS value of $0.30 and their fully risked NAVPS value of $0.63. The report noted that a multiplier of 0.95 was applied to TD's base estimate.
The company was also given an AL BUY or action list buy rating which means that TD expects the company's total stock return to exceed a minimum of 15%, on a risk-adjusted basis, over the next 12 months and therefore a top pick by TD Research in its sector.
There were some near-term risks described by TD regarding the company that included country risk even though political risk was low as well as exploration risk due to relatively high expected natural decline rates. The fact that the company's assets were all non-operated at the moment was also mentioned as a risk.
Petroamerica was in the news recently when the company deconstructed Vetra's hostile and competing takeover bid of Suroco Energy yesterday.
In a recent phone interview with CEO.ca's Tommy Humphreys, Frank Giustra, one of Petroamerica's large independent shareholders, offered his opinion on Vetra's agressive efforts to get Suroco shareholders to cash out, "I look at behaviour, and we are seeing a lot of hyperbole in VETRA’s news releases. They are clearly chasing Suroco. And they are the operator of Suroco’s assets, which makes me wonder, what info do they have that we don’t? Just askin’."
The company calculated yesterday that Suroco's N Sand play in the Put-7 block could put on another $250 million in value to the proposed Petroamerica / Suroco combination, representing a 100% increase over Vetra's offer.
Mr. Giustra concluded, "I am not sure why a Suroco shareholder would want to give up the potential upside for the all cash offer VETRA is proposing."
Shares were up 4.35% on the news to $0.36 per share.
Currently there are 597.7m outstanding shares with a market cap of $215.2 million.