Lundin Energy (LUNE.SS, Market Cap Â£4977m, SEK 205, 4.0% of JIC Portfolio)
The market was disappointed with Lundin Energyâ€™s Q2 results last week. It fell short at the revenue line due to weaker q2 oil prices. Earnings were however ahead of forecast due to lower Norwegian tax rates and it managed to achieve record quarterly production:
A reminder why I like this stock.
Production from the Johan Sverdrup field is ramping up significantly this year and in 2021 and 2020.
It has a very low operating cost per barrel
It has an enviable record of discovering new assets and announced last week that it is accelerating eight potential developments targeting 120Mmboe net.
All this adds up to a company with a high and improving return on capital, strong cash generation and hopefully increasing dividends. Over the next few years, depending on the oil price, I have seen forecasts of 20-30% returns on invested capital. Basically, it has sunk the investment into the tremendous Johan Sverdrup field and is now starting to reap the rewards.
With a prospective dividend yield of 5.5%, (although UK investors lose 30% due to withholding tax, which can be claimed back as long, I believe, as not held in a SIPP)Â
I have it as Medium Risk/High Reward (a 4.0% target weighting for me).Â
I have decided to use last weekâ€™s weakness to take it to target 4.0%.
I bought 201 shares at SEK 205 = 1788p