Jefferies downgrades Galp as TotalEnergies takes control of Mopane

Investing.com --- Jefferies downgraded Galp Energia to Hold after TotalEnergies took over operatorship of the Mopane discovery in Namibia which leaves the Portuguese group with only long term optionality from the project.

The price target was cut 29% to €15, reflecting sharp reductions to sum of the parts and discounted cash flow valuations.

TotalEnergies agreed to assume operatorship of PEL 83, the block that hosts Mopane, and will hold a 40% operated stake. The move strengthens its position in Namibia’s fast growing deepwater basin, while reducing Galp’s working interest and future exposure to the find.

Jefferies lowered its Namibia valuation for Galp to $1.3 billion, down from $3.3 billion, citing the revised working interest and the economic impact of capex carry obligations. The broker said the implied deal metrics value Mopane at about $1.7 billion on a 100% basis. It estimated the Venus discovery, where Galp will farm into a 10% stake, at about $2 billion using Wood Mackenzie’s model referenced by management.

Jefferies said Mopane now appears to offer long term option value only. It highlighted that Galp had earlier discussed the feasibility of a development in the northwest of the structure, but comments after the asset swap pointed to a renewed focus on less drilled areas in the southeast that will be tested in a three well program with TotalEnergies.

The downgrade also reflects weaker downstream assumptions. Jefferies cut its downstream valuation due to a 2026 roll forward and an expected normalisation in midstream trading. Its SOTP assumes 6 times EBITDA for industrial, 4 times for midstream, down from 6, and 8 times for commercial.

Galp trades at about 11 times 2026 earnings, slightly above the European integrated oil peers, while generating a 5.8% free cash flow yield versus the sector’s 6.4% and offering a €0.6 per share dividend that yields 5%. Jefferies said the stock still carries a small premium even after the sell off, and without Mopane development upside it does not see a clear reason for that ahead of new drilling.

Near term, refining margins provide support for fourth quarter earnings, with Jefferies forecasting EBITDA about 7% above consensus.

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