Deutsche upgrades Nostrum Oil after completion of gas facility

5th Jan 2017 15:11

(ShareCast News) - Deutsche Bank has upgraded Nostrum Oil and Gas to 'buy' from 'hold' and upped its price target to 535p from 400p.The company's recent inclusion in the FTSE 250 index provides a unique opportunity for investors to gain direct exposure to the Kazakhstan oil sector, the bank said.Nostrum was felt to be "nearing the end of its execution story and entering a period of delivery of significant production and cash flow growth", with Deutsche forecasting a compound annual growth rate (CAGR) for 2016-2020 of 26% and 36% respectively.Analysts also expect the discount applied during its investment phase to unwind further in 2017 as its third unit of the gas treatment facility (GTU3) comes online and its cash cycle turns positive.The GTU3 facility is in line for completion in the first half of 2017 in the Chinarevskoye field. Drilling oeprations should recommence as it looks to fill the GTU3 expansion which will boost processing capacity to around 100 kilobarrels of oil per day (kboe/d).The broker feels the company can reach its target by the end of 2019 based on its third quarter development well results in 2016 which exceeded its expectations.With the management team committed to returning excess cash to shareholders and an executive chairman who retains around 13% holding, scope for significant dividend reinstatement over the 2018-2020 period is very likely according to the bank.The share price rose 11.15% to 434.60p at 1534 GMT on Thursday.