Analysts at RBC Capital Markets downgraded shares of oil and gas outfit Cairn Energy from 'outperform' to 'sector perform' on Friday, noting that the “chance of a quick, 160p, payout” had been deferred.
RBC said the “fast money” had moved on, leading it to slash its target price on Cairn to 225p from its previous 380p standing, and felt that attention should now refocus on the group's ongoing activities – a “challenging” development in offshore Senegal and weighted drilling campaigns in the waters off the coast of Norway and Mexico.
At last week's peak, Cairn was up 43% year-to-date as the market speculated on a near-term result to its long-running, $1.4bn Indian arbitration case.
However, with the ruling being delayed, the Canadian bank said it saw “few, compelling, near-term catalysts” and, therefore, expects Cairn's stock to track its sector.
“We believe speculative interest drove Cairn's shares higher in Q1/19, but most investors appear unwilling to 'invest' on binary outcomes; and although the possibility of a 160p payout remains, timing is uncertain and new, 'late 2019', guidance appears to be a best guess,” said RBC.
“With few near-term catalysts, Cairn's 2019 drilling programme is H2/19 weighted, and a market that is unwilling to price in exploration upside, we expect the share price to trend with the oil price, which supports our Sector Perform rating.”
The analysts also noted that while Cairn “might stumble”, the company was “financially robust” and unlikely to fall.
“The stock is discounting $62/bbl, which is in line with its peers; therefore we would look again if the (rebased) stock lags a sector rally.”