NXT Energy has “Significant Valuation Catalysts”, says Mackie

NXT Energy (TSXV:SFD), which has a history of winning contracts in Pakistan, could very well find itself the victor of a large and recently tendered exploration and production contract in that country, says Mackie Research Capital analyst Raveel Afzaal.

Pakistan’s Oil & Gas Development Company Limited announced that it intends to conduct an aerial survey of four exploration blocks, an is accepting bids until March 5th of this year.

Afzaal says NXT is well positioned to win the project because it has a history of being awarded similar contracts, such as the a $2.7-million survey it conducted for Pakistan Petroleum Limited in December of 2012.

But this contract, he says, could be much bigger.

“Based on the area of the exploration blocks, we estimate that the size of the OGDCL contract should be over $5.0mm”, he said.

The analyst says the Pakistani project adds to other potential contracts in Bolivia and Mexico to create what he says are “significant valuation catalysts” for the company in the first half of 2015.

In a research update to clients this morning, Afzaal maintained his “Speculative Buy” rating on NXT Energy, but raised his target price from from $1.70 to $1.90, a valuation he notes implies an 11.5x P/E multiple on his 2016 numbers.

The analyst says there is room to move his valuation upward if the company can continue to perform.

“We note that it is not uncommon from O&G technology companies to trade at P/E multiples ranging from 20x to 30x,” he said. “However, the Company will need to demonstrate that it can secure large contracts on a regular basis and provide additional disclosure on its technology prior to us revising our P/E multiple assumption used to value its common shares”.