The 2011 full-year results published earlier today did not contain any surprises and came largely in line with our expectations. We maintain our 12-month target price of GBp 772 with a “Buy” recommendation.
In 2011, Dragon Oil’s revenue grew 47% YoY to $1,150mn, thanks to a 40% increase in the average realized oil price and a 6% growth in oil volumes sold. The revenues figure is just 1% above our expectations, due to crude oil overlift position. The company’s EBITDA and EBIT increased to $1,062mn and $856mn, 57% and 76%, respectively. These numbers exceed our estimates by 4% due to the actual cost of sales lower than we anticipated. For 2011 the company reported lower marketing costs than in 2010 because of the higher crude portion sold by one export route. Dragon Oil earned $648mn in net income, up 68% YoY. The financial results are largely in line with our expectations. (See Figure 1.)
| Figure 1. 2011 results review | |||||
| in $ mn | 2010A | 2011A | YoY, % | 2011E | Actual vs HF, % |
| Sales | 780 | 1 151 | 47% | 1 136 | (1%) |
| EBITDA | 676 | 1 062 | 57% | 1 021 | (4%) |
| EBIT | 488 | 856 | 76% | 826 | (4%) |
| Pretax income | 515 | 872 | 69% | 856 | (2%) |
| Net income | 386 | 648 | 68% | 642 | (1%) |
| Brent, $/bbl | 79 | 111 | 41% | 111 | 0% |
| Average realized price, $/bbl | 72 | 101 | 40% | 101 | 0% |
| Gross production, bopd | 47 200 | 61 500 | 30% | 61 500 | 0% |
| Entitlement | 61% | 53% | -13% | 53% | 0% |
| Source: Company data, Halyk Finance estimates | |||||
As for the balance sheet, Dragon Oil’s total assets increased by 26% to $3,351mn on higher capex and short-term investments. Dragon Oil spent $351mn on capital expenditures about equally split between infrastructure (47%) and drilling (53%).
The company’s cash flows from operating activities grew to $1,105mn, compared to $595mn in 2010 thanks to the appreciation in the oil price. The net cash position decreased as Dragon Oil placed a portion of its cash into term deposits.
Earlier this month, the company confirmed that it is considering a takeover of Bowleven (AIM: BLVN), a mid-cap oil and gas exploration company with assets in Cameroon and Gabon. According to the City Code on Takeovers and Mergers, Dragon Oil must formally announce by March 16, 2012 whether or not the company intends to make an offer for Bowleven. On the news, BLVN soared 62%. In the absence of more detail on the possible takeover we would not comment on the transaction. Last year, Dragon Oil said it planned to spend up to $500mn on acquisitions to expand its operations outside Turkmenistan.
