Genel Energy - Re: GENL Stream Log - Genel Energy (Buy, 700p TP):...

Genel Energy (Buy, 700p TP): H115 Results Reaction DB View: With the Kurdish government withholding export payments for c. 70% of sales volumes, this was never going to be a stellar 6 months for Genel's cash generation. However, the extent to which the c. 30% of volumes directed into the domestic market has acted as a counterbalance is impressive, particularly in light of the lower commodity and discounted local pricing. All told, nil operating cash flow from what is a small portion of overall sales demonstrates the reliance of Genel's low-cost portfolio, and ultimately, the operating leverage one can expect from payment normalisation and a higher commodity. On the numbers themselves, data points for H1 on production (88.8kb/d, +41% Y/Y), revenue ($199m, +4% Y/Y) and net debt ($216m, up from $2.3m) are consistent with July's trading statement. Cash revenue from domestic sales totalled $50m, resulting in free cash negative of $212m through H1. The outlook is encouraging with Genel expecting oil export payments to resume from September, as per the KRG announcement earlier this week. Guidance for 2015 has been maintained for production (90-100kb/d), revenue ($350-400m at $50) and capex ($150-200m). Operationally, development of the high-margin Miran and Bina Bawi oil resource remains consistent with our expectations (2H16), albeit commitment to this is likely dependant on the pace of normalisation of export payments over the next 12 months. Genel remains our preferred Kurdistan-focused stock in the sector at what we believe is an attractive valuation (0.45x P/NAV, discounting $45/bbl long term Brent).