Take advantage of a 49% six-month slump in Chinese coal bed methane (CBM) play Green Dragon Gas (GDG). Buy ahead of incremental catalysts as it builds towards an annualised production target of 18 billion cubic feet (bcf) by the middle of 2015.

Although the company’s CBM production has gathered momentum this year, current output still stands at less than two bcf. The growth potential is not reflected in a share price which is at a discount to Green’s net asset value (NAV), as estimated by broker Peel Hunt, to be 287p. Peel’s NAV estimate includes the firm’s existing production plus its fully owned midstream and downstream assets minus debt.

The £342 million cap has six production sharing contracts in China but currently produces from just one of these: Shizhuang South or GSS. As it ramps up its development drilling on GSS it should be able to book an increasing proportion of the field’s 1.3 trillion cubic feet of proved, probable and possible (3P) reserves as proved and probable (2P) reserves. This should help remind the market of the value in its portfolio.

There is a clear route to market for these hydrocarbons as Green Dragon owns a number of compressed natural gas (CNG) retail stations. These stations sell CNG as vehicle fuel at around $16 per thousand cubic feet. The firm has also built a tie-in to a key natural gas pipeline. Green is confident it fully understands the geology of GSS and has the capacity to drill the wells it needs to hit its medium-term target.

Founder, chairman and chief executive officer Randeep Grewal told Shares: ‘The car is fully assembled we just need to get it on the road.’

The one piece of the jigsaw which is missing is funding with the group estimating it needs to spend $250 million to get to the 18 bcf threshold. Grewal says he is confident the company can secure debt financing for the project.

Shares says: Buy at 250.3p.