Can Diversified Energy shares turn on the gas?
Until recently the UK stock market's highest yielding share, this energy company cut its dividend and watched its share price tumble. Independent analyst Alistair Strang scans the charts for good news.
3rd September 2024 07:50
by Alistair Strang from Trends and Targets
Our last review of Diversified Energy Co (LSE:DEC) was around three weeks ago, yet a bunch of emails asking for an update arrived.
The issue is, against our expectations, the share price triggered a reversal cycle, hitting then breaking our secondary drop target of 911p without too much fuss a couple of days ago.
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There’s little doubt DEC’s share price is misbehaving, something of a surprise for the company which is the largest owner of oil wells in North America. To be honest, they have form for buying oil wells at their end of life at a knock down price. The reason for the knock down price comes from the accepted cost of decommissioning an oil well, but Diversified Energy claims to be substantially undercutting the price to shut everything off and make it safe.
As a result, they are able to create “book” values which exceed their actual operational profit, simply by buying empty wells which need to be made safe. Diversified’s method of making the wells safe creates a valuable bank of land.
The break below 911p bothers us as it has created a situation where below 885p now calculates with the potential of reversal to an initial 758p with our secondary, if broken, at 608p and hopefully a proper bounce.
If things intend to suddenly go right for Diversified, the share price needs currently to exceed 983p to give some hope as recovery to an initial 1,080p looks possible with our secondary, if bettered, at 1,318p and the potential of a sea change in the company's fortunes.
Unfortunately, for now, any idea of “averaging down” looks fraught with danger.
Source: Trends and Targets. Past performance is not a guide to future performance.
ii's head of editorial Lee Wild owns shares in Diversified Energy Company
Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.
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