On Tuesday, Goldman Sachs (NYSE:GS) resumed coverage on Ithaca Energy (LON:ITH:LN), assigning the stock a Buy rating with a price target of GBP1.40. The investment firm's analysis highlighted that Ithaca Energy has lagged behind its European Exploration & Production (E&P) counterparts by approximately 30% over the past year.
Despite this underperformance, Ithaca Energy's shares are trading at about a 25% discount compared to its European E&P peers based on the 2025 estimated Enterprise Value to Debt-Adjusted Cash Flow (EV/DACF), as forecasted by Goldman Sachs.
The analyst from Goldman Sachs noted Ithaca's commitment to its dividend policy through 2024 and 2025, aiming to return up to $500 million annually to shareholders. Although the firm's conservative estimates assume dividend payments of only $400 million for each of those years, this would still represent a substantial payout ratio of around 40% and 30%, respectively, based on their projections.
Ithaca Energy's dividend strategy is set to deliver one of the highest cash returns to shareholders within its peer group. The estimated cash return stands at nearly 19%, which is significantly higher than the average cash return of approximately 13% for both major European oil companies and other European E&P firms. This robust dividend policy underpins Goldman Sachs' positive outlook on the stock.
The firm's endorsement comes even as it anticipates potential downside risks from a weakening oil market in 2025. Despite these concerns, Ithaca Energy's lower exposure to these risks, compared to its peers, adds to the company's investment appeal according to the Goldman Sachs analyst.
Investors may consider the renewed coverage and the set price target as a sign of confidence in Ithaca Energy's financial strategy and its ability to generate value amidst market fluctuations. The Buy rating reflects the firm's assessment that Ithaca Energy's stock could see an upward trajectory moving forward.
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