Since March 2020, the Harbour Power (LSE:HBR) share price has fallen 86%. Of all of the FTSE 250 shares, this makes it the third-worst performer. It additionally fell closely yesterday (6 March) when the oil and fuel producer introduced its 2024 outcomes.

The group’s efficiency contains round 4 months’ contribution from the Wintershall Dea portfolio of property. These have been acquired on 3 September, for consideration of $11.2bn (£8.7bn at present trade charges). The deal has been described as “transformational” as a result of it means the enlarged group will likely be producing greater than twice as a lot as Harbour Power’s earlier output.

Buyers seem unimpressed

However simply previous to the acquisition, the group’s inventory market valuation was £2.2bn. It’s now – regardless of the numerous uplift in manufacturing — solely £3.1bn. It appears as if buyers are sceptical concerning the deal.

Nevertheless in 2024, Harbour Power achieved manufacturing of 258,000 barrels of oil equal a day (boepd). This was 40% greater than in 2023. And income was 65% greater at $6.2bn. For 2025, when the total good thing about the acquisition is realised, output is predicted to be 450,000-475,000 boepd.

Nevertheless, regardless of this income progress, the corporate’s backside line has been severely impacted by the federal government’s power earnings levy, or windfall tax because it’s extra generally identified.

The group made a post-tax lack of $93m versus a revenue of $45m in 2023. Nevertheless, the 2024 outcomes do embrace $1.1bn of outstanding prices, together with impairments and write-offs.

Amazingly, the corporate was topic to an efficient tax price of 108%. Thankfully, a lot of the Wintershall Dea portfolio falls outdoors the scope of the windfall tax. However the group’s nonetheless more likely to face an eye-watering tax invoice for the foreseeable future.

Money is king

Nevertheless, it’s money that actually issues. And in 2025, the corporate’s forecasting free money circulation (after tax and earlier than shareholder distributions) of $1bn. That is based mostly on a Brent crude price of $80 a barrel and a European fuel price of $13/mscf (thousand customary cubic ft).

By comparability, oil’s at present buying and selling at $70 and fuel is simply over $15. A $5 motion (up or down) in Brent crude is equal to $115m of money a 12 months. A $1 change within the fuel price may have the identical influence.

Based mostly on present market costs, it due to this fact seems as if the group stays heading in the right direction to ship the $1bn of money that’s been forecast. And with the dividend at present costing $455m a 12 months, assuming all goes to plan, it will likely be coated greater than twice by free money.

However commodity costs could be risky, so there are not any ensures that the $1bn will likely be achieved. And any signal of a shortfall may influence the dividend and investor confidence.  

Nevertheless, ignoring the disappointing market response to the outcomes, I intend to stay a shareholder. Regardless of the large tax price, the group’s money generative. And there’s a little bit of headroom, which ought to make sure the dividend’s maintained even when power costs soften a bit.

Additionally, the group’s price-to-book ratio is barely 0.63 which, in my view, suggests the current sell-off has gone too far. On this foundation, buyers wanting so as to add an undervalued inventory to their portfolios — and one providing a beneficiant dividend — may contemplate shopping for Harbour Power shares.