UBS upgrades Galp to “buy,” cites Namibia asset as key catalyst

Investing.com -- UBS Global Research upgraded Galp Energia (ELI:GALP) to “buy” from "neutral" rating and raised its 12-month price target to €20 from €15, citing the potential of the Mopane oil discovery offshore Namibia to significantly increase the company’s value, in a note dated Monday. 

Galp shares have dropped about 30% from their 2024 highs, mainly due to doubts about its Namibian assets. 

UBS analysts now see the Mopane discovery as a commercial opportunity capable of driving a near doubling of Galp’s share price within five years.

Galp holds an 80% stake in the Mopane block, where estimated resources exceed 10 billion barrels of oil equivalent.

 The company is in the process of securing a partner to take on a 40% stake and operatorship. 

UBS values Galp’s post-farm-out interest in the field at approximately €6 per share, including €5.3 per share from a projected capital expenditure carry and €0.6 from its remaining field stake.

According to UBS, the market currently prices at only €0–1 per share of value for the Namibian asset. 

A farm-out agreement, expected by the fourth quarter, is viewed as a significant near-term catalyst. 

UBS estimates the project will become free cash flow positive by 2033 and could add 135,000 barrels of oil equivalent per day to Galp’s production by 2035.

The upgrade also reflects an improved outlook for Galp’s midstream and downstream operations. 

UBS raised its EPS forecasts by an average of 16% for 2025 through 2027, driven mainly by increased LNG volumes and firm refining margins. 

The company recently began receiving contracted LNG volumes from Venture Global’s Calcasieu Pass terminal, expected to add €213 million to annual EBITDA. UBS now expects Galp’s downstream EBITDA to exceed consensus by 30% over the next two years.

In Brazil, Galp is set to return to production growth after a period of stability. The Bacalhau project is expected to start production in the second half of the year, with Galp’s effective stake projected to add €300 million in free cash flow at plateau. 

UBS forecasts a 14% compound annual growth rate in production through 2027, reversing the decline from recent years.

UBS analysts said their new €20 price target is based on a blended valuation approach, including a 50/50 mix of sum-of-the-parts and EV/DACF methods, using a long-run Brent price of $75 per barrel. 

The increased target reflects both higher earnings estimates and a revised net present value for Namibia, now calculated at $2.9 per barrel of oil equivalent, up from $1.8.