Three Rig Program And Growing Reserves Will Support Long Production Runway

Catalysts

About Deutsche Rohstoff

Deutsche Rohstoff focuses on oil and gas production in the United States alongside minority investments in metals and mining companies.

What are the underlying business or industry changes driving this perspective?

• The move to run three operated rigs for the first time and drill around 26 wells through 1876 points to a step up in development activity that can feed higher production volumes and support revenue and EBITDA in the next few years.
• A reserve base of roughly 79 million BOE, with management aiming to keep growing reserves while producing, gives the company a long production runway that can support sustained cash flow generation and provide visibility on earnings.
• The build out of acreage in Ohio, alongside existing positions in the Powder River and DJ basins, creates scope for multi basin development that can diversify the production mix and potentially stabilize group revenue and margins over time.
• Exposure to Almonty, which is focused on conflict free tungsten, ties the group to continued demand for critical metals. Realized gains together with the remaining €240 million to €250 million position give optionality for further investments or balance sheet strengthening that can influence future earnings and net leverage.
• A relatively low net debt to EBITDA ratio around 1x at the end of 2025, with management indicating potential movement toward 0.4x, combines with strong liquidity of roughly €150 million. This supports development plans without heavy reliance on external funding, which can help protect net margins and earnings per share.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Deutsche Rohstoff's revenue will grow by 22.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 65.3% today to 12.3% in 3 years time.
• Analysts expect earnings to reach €41.2 million (and earnings per share of €12.47) by about July 2029, down from €119.8 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 15.3x on those 2029 earnings, up from 3.1x today. This future PE is greater than the current PE for the DE Oil and Gas industry at 14.9x.
• Analysts expect the number of shares outstanding to decline by 1.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.26%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Deutsche Rohstoff is increasing activity by running three rigs and planning to drill around 26 wells through 1876. If oil or gas prices weaken for a prolonged period, this higher capital intensity could lead to lower project returns and pressure on revenue and EBITDA instead of the uplift assumed in the current growth focus, which would affect earnings.
• The company highlights higher well costs per lateral foot due to more complex completion designs and is relying on these designs to improve well performance. If productivity gains do not materialize or some formations continue to underperform like the recent Mowry wells, unit economics could worsen and weigh on net margins and longer term earnings.
• A large part of the asset base and recent earnings power is tied to Almonty and a very high tungsten price supported by a Chinese export ban and supply deficit. If tungsten prices normalize or export policies change, the value of the remaining roughly €240 million to €250 million position and related extraordinary gains could fall, which would reduce liquidity flexibility and future earnings.
• Guidance and reserve valuations use price decks such as $60, $75 or $85 per barrel and the company is only partially hedged with roughly 30% of 2026 production and below 20% of 2027 production covered. If oil prices decline materially or the Iran war related supply disruption eases faster than expected, realized prices could sit well below current levels and pull down revenue and EBITDA.
• The business is increasingly concentrated in US onshore development with growing exposure to Powder River, DJ and Ohio acreage and a larger bond program of roughly €193 million. If service costs rise as broader industry activity picks up or access to bond markets tightens, project breakevens could move higher while refinancing flexibility narrows, which would pressure free cash flow, net margins and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €116.5 for Deutsche Rohstoff based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be €334.1 million, earnings will come to €41.2 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 5.3%.
• Given the current share price of €78.1, the analyst price target of €116.5 is 33.0% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.