Ithaca’s proposed ENI deal is the right strategy at the wrong price, says US investment bank

‘Right strategy, wrong price’. That’s the headline from a research note penned by American investment bank Stifel on Ithaca Energy PLC (LSE:ITH)‘s proposed acquisition of North Sea assets from Italian oil giant ENI for an estimated $1.1 billion. Restating its ‘hold’ rating, Stifel has pegged back its price target by 17p to 140p a share. In late morning trading the stock was off 3.4% at 128.46p. The revised valuation also comes in the wake of lower-than-expected production across 2024 to 2027, attributed to asset underperformance and the adverse impact of UK windfall taxes on investment. Stifel said the proposed acquisition from ENI is expected to temporarily offset this production decline. as assets from ENI are projected to increase production notably by 2025, thanks to the startup of Seagull and Talbot fields.

However, Stifel views the price paid for these assets as not particularly value-adding, equating the equity issued for the acquisition to the assets’ value, thus creating no additional value from the transaction. The analysis further discusses the strategic value of consolidation in the North Sea, highlighting the efficiencies and potential for improved resource recovery and management of decommissioning liabilities. Nonetheless, it also points out challenges, including the political and fiscal risks inherent in the UK sector, which may affect the valuation and future investment decisions.