Petro Matad still a ‘buy’, says Westhouse

Petro Matad (LON:MATD) is still a ‘buy’ according to Westhouse Securities, however, the City broker says a possible farm-out would be the only catalyst for the share this year.

The Mongolia focussed explorer has gone back to the drawing board following a disappointing phase of exploration which ruled out a development of what was its flagship asset.

Under the guidance of new management the company is now pursuing new prospects within its portfolio and it hopes to bring in a partner to the project. To this end a data room was recently closed and a deal could be a possibility during the third quarter.

Whilst pointing to the inherent risk of exploration, Westhouse Securities believe that at the current price investors are too harshly judging the group’s prospects.

As a pure frontier exploration play Westhouse says the attractiveness of Petro Matad should be measured by comparing the chance of success implied by the market (Westhouse calculates this as a 2% chance) versus the prospects geological chance of success.

“Given the exploration work conducted by the new management and the fact that there has already been discoveries in the general area, we believe that the geological chance of success is higher than what the market is implying (we have assumed 5% chance of success),” it said.

“From that perspective, at current share levels we see Petro Matad as a longer term good risk/reward opportunity.”

The broker adds: “The outcome of the farm-out is likely to be the only major catalyst for the stock this year.”

Following a recent US$5mln share placing Westhouse has cut its target price top 12p from 15p – the explorer currently trades at 4.88p.

Source: Proactive Investors UK