Diversified Energy Company (LON:DEC) is under the DirectorsTalk spotlight after releasing its first half results for the period ended 30 June 2023. DirectorsTalk caught up with Matthew Cooper, Research Analyst Oil & Gas at Peel Hunt, and James Mccormack, Director, Research at Cavendish for their views on the company and its outlook. Diversified Energy is listed in the FTSE All-Share, FTSE 350 High Yield, FTSE 250 and FTSE 350 indices.
Matthew Cooper, what are your views on the H1 results, Diversified as a dividend-yielding stock and the outlook for the company?
“Diversified’s H1 results were very strong with key highlights being record production of 142Mboe/d, unit costs down 10% versus the same period last year, and consensus beats at both the revenue post-hedging and adj. EBITDA levels. Diversified looks extremely attractive particularly at current levels; offering a c.15% dividend yield with this dividend underpinned by one of the lowest risk FCF profiles in the sector.
In terms of the outlook, key upcoming catalysts for the company include continued monetisation of its material non-core acreage and further M&A, with the latter perhaps accompanied by a dual listing in the US.”
James Mccormack, Cavendish Director, Research shared with us the following thoughts in our exclusive interview:
James, what were the key takeaways in Diversified Energy’s interim results?
There are a couple of major takeaways, the first being the resilience of the business in the wake of lower natural gas prices. Through the Company’s proactive hedging programme, Diversified was able to realise a price 25% higher than Henry Hub in H1/23, which together with a 10% reduction in unit costs resulted in a 52% adjusted EBITDA margin. The second major takeaway is Diversified’s continued commitment to sustainability, which has seen the Company awarded the OGMP Gold Standard and a ‘AA’ rating by the MSCI.
How do you see the market demand and pricing outlook for natural gas?
Macro indicators point to a strengthening in natural gas prices, both in the short-term and long-term. Short-term strengthening is expected to be driven by a plateauing of supply from a c.12% reduction in natural gas drilling rigs year-on-year and an increase in demand driven by coal to gas switching. Longer-term demand will be driven by a doubling of US LNG capacity over the next five years. What Diversified has proven over the previous five years is that it is able to produce consistent cash margins through the commodity price cycle.
Does Diversified Energy represent a good buying opportunity for investors right now?
Diversified is trading on FY23 P/E and EV/EBITDA multiples of 7.5x and 5.2x, respectively, versus a North American natural gas focussed peer average of 17.7x and 6.6x, respectively. We believe Diversified makes for a compelling investment case given its discount to its peers and its industry leading 16% dividend yield.
Diversified Energy Company PLC (LON:DEC) stands as a pioneer in the realm of independent energy companies. With our unwavering commitment to producing, marketing, and transporting natural gas and associated liquids, we have cemented our position as a leader in the industry. Our strategically located onshore upstream and midstream assets, predominantly situated within the Appalachian and Central Regions of the United States, serve as the backbone of our operations.
