Citi Research initiates coverage of ADNOC Drilling with ‘Buy’ rating

Citi Research initiates coverage of ADNOC Drilling with ‘Buy’ rating

Citi Research initiates coverage of ADNOC Drilling Co., a subsidiary of Abu Dhabi’s national oil company ADNOC, with a 'Buy' rating and a target price of 4.4 dirhams ($1.19).

The stock closed at AED3.92 on Monday on the Abu Dhabi bourse.

The driller has a defensive operating model, with secured returns, that stands out in a highly cyclical industry.

"Whilst the current valuation arguably reflects some of this, we still see upside through margin accretion and resilient growth (sour gas and unconventional). This outlook supports our above-consensus earnings estimates, +13% 2023-30E, and 4.4 AED TP (Buy)," Citi Research said in a note on Tuesday.

This growth is de-risked by: 1) a young asset base and 2) guaranteed rig returns, it noted. "The former allows for substantial margin expansion, with our estimates indicating a +300 bps uplift by 2027. And the latter provides long-dated and predictable cash flows (10-13% IRR), regardless of inflation or market volatility."

In an earlier note, Citi estimated that MENA oil & gas spend is now 10% above pre-pandemic, with producers keen to monetize their deep hydrocarbon resources.

ADNOC Drilling listed in 2021 after ADNOC, its majority shareholder, raised $1.1 billion from investors through an IPO.

(Writing by Brinda Darasha; editing by Seban Scaria)

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