Buy this ASX 300 energy stock now for a 40% return

The Australian share market provides investors with a number of options in the energy sector.

One ASX 300 energy stock that could be a good option for investors with a higher tolerance for risk is Strike Energy Ltd (ASX: STX).

That's the view of analysts at Bell Potter, which are tipping the gas exploration and development company's shares to rocket from current levels.

What is the broker saying about this ASX 300 energy stock?

According to a note released this morning, the broker was pleased to see that Strike Energy has decided to push ahead with the South Erregulla Peaking Gas Power Station.

This new development is on budget and now expected to generate higher revenues than previously forecast. Commenting on the new development, the broker said:

STX has announced a positive Final Investment Decision for its South Erregulla Peaking Gas Power Station (100% STX). The 85MW facility is budgeted to cost $137m (previously guided to $120-160m) and will be funded from STX's $217m debt finance facility and existing free cash flow (Walyering).

STX now estimate the project to generate annual revenue of $50-55m (previously guided to $40-50m), has a pre-tax NPV of $250m and an IRR of 27%. The power station will be supplied by STX's South Erregulla field at a rate of around 2PJpa (from 82PJ 2P Reserves & 2C Resources). STX expect to commission the plant before October 2026.

Big return potential

In response to the news, the broker has reaffirmed its speculative buy rating and 29 cents price target on the ASX 300 energy stock.

Based on its current share price of 20.5 cents, this implies potential upside of 41% for investors over the next 12 months.

Bell Potter likes the company due to its exposure to the Western Australia energy market, which is expected to experience supply deficits for the remainder of the decade. It said:

Cash flows from the producing Walyering field support STX's growth via the potential SE power facility and West Erregulla (50% STX) gas developments. These projects are all linked to the Western Australia energy market, where gas and electricity prices have recently strengthened, and supply deficits are expected over the rest of the decade. Our heavily risked valuation of $0.29/sh (unchanged) supports a Speculative Buy recommendation.

All in all, this could make the ASX 300 energy stock a good option for high risk investors that are looking for big returns and exposure to the energy sector right now.

The post Buy this ASX 300 energy stock now for a 40% return appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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