Time to get back into InterOil

We’re in the good company of Morgan Stanley..

We told you to sell InterOil a week or so ago when it was at $72, as we (mistakenly) thought the support level had broken. It did indeed go down to $68 (and we actually issued a buy-back call on an Internet board on Thursday the 10th). It has since recovered to $70.

We never really expected it to go down a whole lot (maximum to $65, the 200 day average), as there are big parties accumulating and new, price moving developments are coming ever closer.

Indeed, this is what Morgan Stanley is saying:

InterOil Corp. (IOC): Stock Has Lagged on Lack of Catalysts; Several Lie Ahead

Why has the stock underperformed?We believe that the stock has underperformed because of a lack of news surrounding a number of catalysts that the market expected in late 4Q 2010, but which have yet to be announced.

Why we still like it, and upcoming catalyst

With an estimated Net Asset Value of $225/share at its current resource estimate, the stock is trading at a 70% discount to NAV. We expect that an upwards revision to resource estimates and execution on monetization of the asset base, including official project sanction, will close the value gap in the coming months.

Catalysts that we expect in the next 30 days include 2010YE GLG resource assessment and clarity of LNG financing by partner EWC. Potential additional catalysts over the 60 days could also include an FLNG monetization deal, a strategic asset sell-down (1-10% of Elk Antelope), spud of next exploration well, and a gas off-take agreement (for up the 2mtpa).

And they were not the only ones, Raymond James was at it as well:

InterOil Corp. (IOC) Cur. Price (3/9/11) $70.11 Non-GAAP 09A 10E 11E 10-day ADV 368,330
Outperform 2 52-Wk Range $81.98 – $41.67 EPS $0.47 $0.21 $0.51
Market Cap. (mil.) $3,569 PEs 149.2x 333.9x 137.5x Div. Yield NM
Pavel Molchanov BV (09/10) $10.49 Rev. NAV/Share $102.58 (713) 278-5270 Suitability High Risk (mil) $693 $829 $1,026 LT Debt/Total Cap 14%

InterOil Corp. is an oil and gas company with operations in Papua New Guinea (PNG).
Presented on: Wednesday, 11:35 a.m.
Presented by: Wayne Andrews, Vice President of Capital Markets
Management summarized the outlook for InterOil as it enters what should be an eventful 6-12 months. A year-end 2010 resource update is expected in conjunction with the 4Q10 results, to be reported later this month. A final investment decision (FID) on the condensate stripping plant and modular LNG plant – which are aligned as an integrated project – remains on track to be completed by the end of June. While fully recognizing the timing and execution risks, we continue to like InterOil’s long-term cash flow potential and reiterate our Outperform rating. Management remains in talks for an Elk/Antelope gas resource selldown to prospective offtake partners, which we see as a potential near-term catalyst (albeit with uncertain timing). A resource sale transaction is clearly foremost in investors’ minds, and with InterOil’s recent $280 million capital raise enhancing its negotiating standpoint, discussions with potential offtakers continue. There also remains the potential for a fixed floating LNG plant, initially envisioned as 2-3 million tons per year. The company “may have some news on that in the near future.”