RE: Ex div on 24th24 Nov 2022 11:31
DOWGATE T'DAY
Diversified Energy (Diversified) is focused primarily on US natural gas production. Its strategy is to acquire and operate producing energy assets, which has seen it grow rapidly and create significant shareholder value. Since its 2017 IPO, the group has grown reserves 15x, increased production over 280x, raised the dividend 11 times and grown its market value 16x to £1.1bn. Diversified is currently the 2nd largest independent energy company by production, the 4th largest by market value and the 3rd highest by dividend yield (11.3%) in the FTSE250. It is currently working on a US listing. Diversified has made strong progress on its ESG initiatives, joining the UN Environment Programme’s Oil & Gas Methane Partnership 2.0, and was recently awarded the Gold Standard Pathway. It is targeting a 30% reduction in methane emissions by 2026 and 50% by 2030 and has committed to reach net zero by 2040. Following Russia’s invasion of Ukraine, US gas prices are trading at a 14yr high but at a quarter of levels experienced in the UK and Europe. We expect Diversified will benefit from higher prices as US LNG exports continue to drive up US gas prices. We forecast revenues and Adjusted EBITDA to grow by 2021-23E CAGRs of 23% and 24%, respectively, as the group benefits from higher energy prices. We model further DPS increases of +5% to 17.3c in 2022 and +3% to 17.8c for 2023, which provides a yield of 11.3% this year rising to 11.7% next. We initiate coverage with a Buy and an NAV-derived target price of 210p, which provides upside of 65%.