Morgan Stanley: Raises Harbour Energy earnings forecasts, but major shareholder sell-down still weighs on valuation

How much do higher oil-price assumptions change earnings forecasts?

Morgan Stanley raised its average Brent crude price assumption for the second half of 2026 from about $88 per barrel to $99, and for 2027 from $79 to $85, citing higher realized prices in recent weeks and alignment with its assumptions for other companies it covers.
The oil-price revisions lifted the bank’s adjusted EBITDAX forecasts for Harbour Energy in 2026 and 2027 by an average of about 15%; its 2027 earnings-per-share forecast rose from $0.42 to $0.54, an increase of about 30%.
The earnings-per-share forecast for 2026 rose from $0.22 to $0.49, an increase of about 125%, also supported by a reduction in the assumed effective income-statement tax rate from 97% to 84%; the cash tax rate assumption was broadly unchanged over the same period.

Morgan Stanley believes robust operational performance and favourable oil prices have left the company’s leverage below its target; under its new free-cash-flow distribution policy, stronger commodity prices are expected to support higher distributions.
The bank’s base-case valuation assumes annual dividends of 300 million dollars in 2027 and 2028, implying per-share dividends of $0.17 and $0.18, respectively, and assumes that additional cash generated will be prioritised for buybacks.
The company is shifting its portfolio towards operated oil and gas production with lower costs and tax burdens, and recently entered the US Gulf of Mexico. The bank also expects daily production to fall from 500.4 thousand barrels of oil equivalent in 2026 to 489 thousand barrels in 2027 and 478.5 thousand barrels in 2028.

BASF has said it intends to exit its stake completely, and the company is using buybacks to address its selling. Morgan Stanley is concerned that the benefits of additional free cash flow could accrue more to the seller than to continuing shareholders, and therefore wants to see the selling pressure ease first.
The bank notes that Harbour Energy’s free-cash-flow yield is among the higher levels in its peer group, while its dividend yield lags peers. Its Equal-weight rating corresponds to a price target of 269 pence, below the closing price of 295 pence on 2 November 2026.
The price target uses a dividend-discount model, assuming annual per-share dividend growth of 2.5% from 2029 to 2050, discounted at a cost of equity of 9.5%; this long-term growth assumption includes inflation protection for prices, as well as replenishment of depleted reserves through organic and inorganic means.