RBC downgrades Premier Oil to 'sector perform'

Analysts at RBC downgraded their recommendation on shares of Premier Oil from 'outperform' to 'sector perform' after the shares had reached their 100p target price, which was unchanged.

That target, they explained, was premised on a 2018 price for Brent oil of $59 a barrel, rising to $60 in 2019, which was $10 a barrel below then current prices.

Hence, should oil prices remain at $70 out to 2019, their decision to downgrade might turn out to be mistake.

Under such a scenario, their estimate of the company's fully diluted tangible net asset value, excluding Sea Lion, would rise from 106p a share to 138p.

Indeed, Premier's free cash flow would almost double to roughly $380m, allowing it to again meet its temporarily loosened debt covenants by a comfortable margin.

Nonetheless, should the shares slip - likely on the back of weakness in the oil price - into ramp-up at the Catcher oil field and as the deleveraging process gathers momentum through mid-2018, they said they would recommend "accumulating" its shares.

To take note of, RBC's forecast was that the company would be able to return to an 'investment grade' net debt/EBITDA multiple of 3.0 by the first quarter of 2019, when that relaxtion in its covenants was due to end.