Ecopetrol Rebounds From Record Low as Deutsche Bank Says Buyby
`A number of headwinds' are already discounted, DB says
Driller said 2016 investment set at $4.8 billion, down 40%
Ecopetrol SA rebounded from a record as oil rose and Deutsche Bank AG said concerns over the company’s lack of growth and potential dividend cut are already priced in.
The American depositary receipts surged 7.9 percent to $7.01 at 11:39 a.m. in New York after Deutsche Bank recommending buying the shares and set a price target of $8.40.
Colombia’s state-controlled oil company announced plans Monday to slash investments by 40 percent and set a lower output target for 2016 as part of efforts to cope with oil prices that had tumbled to a six-year low. Adjusted net income at the company will drop 61 percent this year, the fourth consecutive annual decline, according to the median estimate of analysts surveyed by Bloomberg.
“While we continue to see a number of headwinds for Ecopetrol’s investment case (most notably, poor reserves base, lack of growth and our expectations of a significant dividend cut), we believe these risks are discounted at the current share price,” Alexander Burgansky, an analyst at the bank, wrote in research report.
The company may cut its dividend by more than half next year, according to estimates by Bloomberg.
The weaker Colombian peso, plans to resume operations at a refinery in Cartagena, and the assumption of Rubiales field ownership are among positive drivers for 2016, the Deutsche Bank report said.