Shares in Amplitude Energy Ltd (ASX: AEL) have been a bit unloved over the past year, falling more than 40% over the period.
That has prompted the analysts at Morgans to have a look at the energy company, and they believe there is significant upside to be had by investing in this offshore gas producer.
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What has been driving the Amplitude share price lower?
In a note to clients recently, Morgans said there had been some sizeable, albeit short-term catalysts recently which had pushed the share price lower, but added that the shares had de-rated, "to a level we view as unsustainable given the company's forward earnings profile".
Morgans' assessment of the value of the company had dropped 17% due to poor exploration results and weaker spot gas prices, but the shares had fallen 57% since a high in February.
In May, Amplitude bought half of the Artisan gas field in the offshore Otway Basin from Beach Energy Ltd (ASX: BPT) for $58.3 million, which Morgans said was a deal that made sense for the company.
Amplitude Managing Director Jane Norman said regarding the deal:
Producing Artisan through Amplitude Energy's existing infrastructure allows faster and lower-cost development of this gas for the east coast domestic market. Artisan development costs will significantly benefit from leveraging the existing East Coast Supply Project (ECSP) program and our readily-available infrastructure. This is a win-win for Amplitude, O.G. Energy and Beach with respect to optimising our respective Otway Basin positions. We expect to rapidly move to FID on the development phase of the ECSP over the next few months while the drilling of the Juliet and Annie wells is conducted, with Juliet now brought forward and drilling expected to commence by late July or early August.
Morgans said the deal de-risked the ECSP for Amplitude.
Amplitude shares looking cheap
Morgans added:
While the year-to-date share price performance has been disappointing, driven by gas reservation policy uncertainty and the ECSP drilling results, but in our view the share price pressure has outpaced the change in value and has increased the size of the long-term value upside on offer. While there remains great uncertainty around Australia's gas reservation policy, which could bring some downside to long-term domestic gas prices (potentially), it is hard not to believe we are near peak negativity on the topic sentiment wise (an appealing marker for value investors).
Morgans has a buy rating on Amplitude shares with a price target of $3, compared to $1.27 currently.
Amplitude is valued at $385.35 million.
