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Top Gainer: Bow Energy (BOW)

 Closing price  $1.415
 Change  +0.53
 % change  +59.9%

 

Broker Calls

WilsonHTM: BUY, price target of $1.80

Deutsche Securities holds 5% of BOW

Merrill Lynch holds 5.1% of BOW

Shares in Bow Energy (BOW) soared a whopping 59.9% on Monday on the back of a takeover bid from former shareholder and fellow CSG producer Arrow Energy, which is now owned by Shell/PetroChina. The bid price is $1.48 cash per share, valuing the target at $520 million. “At this stage, the Bow Energy board recommends that shareholders take no action,” Bow said, unsurprisingly. What company has ever jumped at the first bid?

Andrew Faulkner, Arrow’s chief executive, said the proposal made sense given the companies hold adjacent CSG assets. “Any future business arrangement would strengthen the opportunity for Arrow to increase the size of its first two liquefied natural gas trains on Curtis Island from the currently proposed 4.0 million tonnes per annum,” Mr Faulkner said.

After hitting a 12-month low of 73.5 cents in mid-May BOW has jumped around, soaring 60% over two months to hit $1.215 in early-August; many must have suspected that there was a takeover bid in the air. However as sharemarket volatility hit global markets the stock was subsequently dumped, falling almost 30% to just 88.5 cents in the three weeks to Friday before today’s takeover bid sent the share price rocketing 60% in a day. 

According to its website, BOW’s “primary business is the discovery and commercial production of oil and coal seam gas fields with projects in several of Australia’s producing Basins”. The focus is on exploration of coal seam gas (CSG), although it is also involved in oil exploration. It has eight CSG projects in Queensland within the Bowen and Surat basins. The next step for BOW is to become a fully fledged producer to supply gas to local and international markets, and Arrow must feel that it is well placed to take Bow to the next level.

We noted a couple of months back that with two of the world’s largest investment banks as major shareholders – both Deutsche and Merrill Lynch own 5% of BOW – that there was some serious weight behind the company. It seems that these powerbrokers have been hugely rewarded (and potentially influential) now that the takeover appears a mere formality.

It’s little wonder that Arrow wants to pick up the company while its share price is on the ropes. BOW announced on Jul 19th that certified 2P reserves by 60% and CEO John De Stefani says that the new gas reserves at Blackwater are a further step towards achieving its goal from the current funded work programs. “Pilot programs are continuing on the Blackwater CSG Field with a series of pilot wells aimed at obtaining further reserve upgrades,” said De Stefani.

If you’re interested in more background information on BOW and where the company currently sits, you can read the Quarterly Activities Report, released on Friday.

Back in February this year John Young, Wilson HTM resources analyst had a $1.80 target on BOW. “Rerating catalysts include achieving commercial flow-rates at its Blackwater and Norwich Park projects, conversion of 3P to 2P reserves and securing major gas supply contracts,” he said. Although it’s a year old now, you can access one of Young’s previous reports from last year on the Bow Energy website:

Bow Energy Limited – Reserve targets and RSPT

Based on Thomson Reuters data, 100% of analysts have a buy on BOW, no change from 3 months ago, although it must be noted that there are only three analysts covering the stock. 

 

Chart: Share price over the year to 22/08/2011 versus ASX200 (XJO)

Stock code: BOW

Charts: Bow Energy Limited

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Investor Centre: Bow Energy Limited