UBS today initiated coverage of Yitzhak Tshuva-controlled Delek Group Ltd. (TASE: DLEKG) with a "Buy" recommendation and target price of NIS 940, a 38% upside on today's opening price of NIS 707.80.
UBS says, "We believe Delek Group offers a different kind of vehicle into the Israeli gas story. It is not structured as a limited partnership (which makes it more “investable” for some investors)." UBS points out that Delek has exposure to all three mega-discoveries in the Levant basin: Tamar (9.1 trillion cubic feet (TCF)), Leviathan (17 TCF) and Cyrpus's Block 12 (7 TCF). It also owns other gas exploration licenses with extensive areas.
Analysts Roni Biron and Ziv Tal say, "Since the Tamar deepwater discovery in early 2009, Delek has increasingly focused on its energy operations, which account for over 70% of its total asset valuation. This includes the upstream operations in the Levant as well as the downstream and mid-stream operations in the US, Europe and Israel. In light of the regulatory environment in Israel and Delek’s recent activities, we believe it is looking to further streamline operations around energy in the coming years and simplify its holding structure."
Biron and Tal add, "Since 2009, Israel has emerged as one of the most promising E&P markets with two of the largest deepwater discoveries in the past decade: Tamar and Leviathan. The latest discovery of 7 TCF in Cypriot Block 12 further highlights the exploration upside in the Levant basin. In addition to gas, Noble Energy Inc. (NYSE: NBL) has identified un-risked oil potential of 3.7 billion barrels of oil equivalent (BOE) with geological probabilities of 8-15%. Delek Group and its subsidiaries stand out from other Israeli E&P companies in their exposure to all gas discoveries to date and extensive license acreage."
They add, "We believe Israeli gas has a strong case, both domestically and on the export front. We expect gas consumption in Israel to quadruple by 2030, as underlying growth in the electricity market is compounded by a shift to natural gas and the emergence of independent power producers and industrial users. The recurrent disruptions in gas supply from Egypt further underscore Israel’s need for a strong indigenous supply. In the export market, we see an opportunity for newcomers as global conditions have tightened considerably post the earthquake in Japan and supply diversification remains high on the agenda."
According to Biron and Tal, 53% of Delek's total asset valuation and 80% of its net asset value (NAV) come from its Israeli exploration and production business. They also note that Delek has been buying out its partners in its gas exploration subsidiaries, and that it plans to streamline its portfolio around energy. "We view Delek as a play on this sector with an attractive valuation," they conclude.
Delek Group's share price rose 1.9% by midday to NIS 720.90, giving a market cap of NIS 8.1 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on January 4, 2012
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