StatoilHydro: Strong Dividend Player

Buy-recommended StatoilHydro (STO) offers unlevered appreciation potential of 57% to estimated net present value (NPV) of $35 a share. On October 28, we reset NPV from $52 a share on the basis of a long-term oil price assumption of $75 a barrel, down from $100.

Patience may be necessary as STO stock price remains below the 200-day average of $30. Released today, third quarter results displayed strength in unlevered cash flow (Ebitda) driven by crude oil and natural gas prices. Futures prices now look lower for the next four quarters. Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports NPV. Production costs under $10 a barrel and low debt combine to keep the company healthy in stressed economic conditions. A high dividend, paid annually at mid-year, is intended to track about half of earnings. Earnings ought to track oil price, approximately.

Timing differences created by the U.S. Dollar/Norwegian Kroner exchange should even out as the real value of the dividend tracks the real value of oil. STO is one of our two European buy recommendations among eleven total selections for global representation in natural gas and oil.

Originally published on November 3, 2008.