Further gains tipped for Horizon Oil

Horizon Oil (HZN) is the best performer in the energy sector this morning as investors cheered news that it can finally complete the asset sale to Osaka Gas.

The stock jumped 4.6%, or 1.5 cents, to a nine-month high of 34.5 cents in early trade and looks poised to move higher as it has broken comfortably above resistance of 33.5 cents, which was the level that capped the stock’s advance since October last year.

The sale of 40% of Horizon’s gas asset in Papua New Guinea (PNG) to Osaka can now proceed as the PNG government has given its tick of approval to Horizon’s Stanley Gas project. Investors have been growing nervous as this approval, a necessary condition for the asset sale, has taken longer to come through.

Horizon will receive around $US77 million from Osaka – a very sizable payment compared to the $US37 million cash holdings the company reported for the end of December 2013.

But shareholders should not expect a special dividend or any capital return. The funds from the deal will be used to help offset Horizon’s capital expenditure for the next two years, which is tipped to come in under $US200 million.

Horizon is profitable and consensus estimates is forecasting a sharp lift in adjusted net profit to $US30.6 million in 2013-14 from last year’s $US2.8 million.

Most brokers covering the stock are urging investors to buy Horizon. The average price target is 51 cents.