BKV's Integrated Operations Offer Value, Analyst Highlights Unique 'Closed-Loop' System And Growth Prospects

Truist Securities analyst Bertrand Donnes initiated coverage on BKV Corporation BKV with a Buy rating and a price target of $24.

The analyst writes that BKV is primarily owned by parent company Banpu, with BKV’s EBITDA contributing about 25% to Banpu’s overall portfolio. Banpu aims to hold a 30-50% stake in BKV, suggesting potential future equity sales.

While this ownership may create some overhang, the parent company’s backing offers downside protection, which is likely valued by investors, adds the analyst.

Additionally, the analyst says that BKV’s partnership with Banpu Power should streamline power plant expansion compared to standalone funding efforts.

The analyst writes that they believe BKV’s appeal lies in its “closed-loop” system, where its integrated asset base efficiently guides gas production from start to end use. This gives it an edge over peers, though the market appears to undervalue the potential of each segment in its current equity valuation.

Donnes says that this underappreciation may have contributed to BKV’s IPO pricing below expectations, as macro and political concerns weigh on valuations for its Carbon Capture, Utilization, and Storage (CCUS) and Power segments, leaving the Upstream/Midstream segment as a valuation floor.

The analyst expects management to deliver on all three segments by 2025. The company is well-positioned to consolidate Barnett upstream assets through equity-based deals that could reduce leverage.

Additionally, its Power JV is positioned to expand into data center demand via new plant acquisitions, while the CCUS segment is set for larger projects focused on industrial emitters, adds the analyst.

The analyst estimates EBITDAX of $194 million in 2024, $307 million (consensus of $306 million) in 2025 and $423 million (vs. estimate of $432 million) in 2026.

Price Action: BKV shares traded lower by 0.11% at $18.17 at the last check Friday.

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