KAR – Macquarie rates the stock as Upgrade to Outperform from Neutral

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The company will acquire the Bauna oilfield for US$665m, becoming the fourth largest liquids producer on the ASX. Macquarie suggests a US$100-120m capital raising may be required to fund the acquisition shortfall and strengthen the balance sheet.

The broker assesses the company’s three-year wait to obtain the field appears to have paid off. Seller Petrobras is undergoing an extensive divestment program to reduce debt.

Macquarie believes the field is more suited to a company such as Karoon Gas, which has the ability to focus on lifting production volumes. Rating is upgraded to Outperform from Neutral. Target rises to $3.00 from $1.15.

Sector: Energy.

Target price is $3.00.Current Price is $1.61. Difference: $1.39 – (brackets indicate current price is over target). If KAR meets the Macquarie target it will return approximately 46% (excluding dividends, fees and charges – negative figures indicate an expected loss).

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