Morgan Stanley reiterated its 'overweight' stance on Cairn Energy following the company's results a day earlier.
“While Cairn's shares sold off materially post the earnings presentation, our thesis remains unchanged. We believe that management delivered a consistent message, particularly on Senegal, once again demonstrating the strong fundamentals of the project,” it said.
It said that three major “blocks” primarily define Cairn: the development resource opportunity in Senegal, including the SNE project, two key startups currently ramping up in the UK – Kraken and Catcher – and the 5% stake in Vedanta.
In particular, it argued that the SNE exploration well in Senegal is highly profitable but the value of the project remains underappreciated by the market.
“Assuming a $65/bbl real Brent price, we estimate the SNE project in Senegal could be worth around 160p, 80% of the share price. After today's weakness, we believe the market is once again rewarding for 60% of that value.
“We expect the market to place more confidence on the SNE project as we approach the project sanction date. We believe it also increases the chances of early monetisation via a farm-out.”
The bank maintained its 300p price target on the stock, which provides 55% upside to the share price.
At 1620 GMT, the shares were up 4% to 201.40p.