Cooper Energy Limited

A Look at Investor Pack July 2019:Cooper Energy Limited (ASX: COE) is an upstream oil and gas exploration and production company. The market capitalisation of the company stood at ~A$908.07 Mn as on 24th July 2019. Recently, the company published its investor pack update for July 2019 wherein it highlighted its recent developments and its outlook. As per the presentation, the company witnessed a rise of 12% to $75.5 million in revenue for full year.With respect to gas market outlook, it stated that the gap between local production and supply is creating a favourable market for south-east Australian gas.The south-east Australia is reliant on QLD gas in order to meet the shortfall between local production and local demand. Further, the company stated that there are good market opportunities for gas from south-east Australian resources.


Sales Revenue (Source: Company Reports)

What to Expect:The company mentioned that the exploration and development program for FY20 and FY21 presents several value catalysts. With respect to Gippsland, it is planning a 90-day performance test in FY20. The company is planning to work on Manta-3 drilling in FY21. In relation to Otway, it is planning to work on Dombey-1 onshore well and acquisition of Minerva Gas Plant in FY20. It is planning Minerva Gas Plant connection to Casino Henry in FY21. With regards to Cooper Basin, it is planning to drill up to 19 appraisal and development wells in FY20 and appraisal and development drilling in FY21.

Stock Recommendation:  The company posted a gross margin of 48.8% in 1H FY19, reflecting an increase of 0.7% on YoY basis. The company reported a current ratio of 6.34x against the industry median of 1.28x. This indicates that COE is in a sound position to address its short-term obligations in comparison to the broader industry. It posted debt to equity ratio of 0.42x in 1H FY19 as compared to the industry median of 0.39x. Coming to the stock’s past performance, it generated returns of 0.92% and 19.57% in the time span of three months and six months, respectively. Currently, the stock is trading at a 52-week higher level of $0.585. Hence, considering the aforesaid facts coupled with decent outlook and current trading levels, we maintain our “Hold” recommendation on the stock at the current market price of A$0.585 per share (up 4.464% on 24^th July 2019).
 

Karoon Energy Ltd

Clear Hierarchy with Regards to Priority uses of Capital:Karoon Energy Ltd (ASX: KAR) is involved in oil and gas exploration. The market capitalisation of the company stood at A$303.67 Mn as on 24^th July 2019. Recently, the company released a statement in relation to the article, which was published on 12^th July 2019 by Upstream. The company clarified that it has presented a high bid in the process for the 100% acquisition of operating interest in Santos Basin, which contains the producing Bauna light oil project. In addition, the company further stated that the transaction is subject to approval by the Board of Petrobras and governance bodies. This bid is in line with the company’s strategy to create value for shareholders by acquiring a high quality and transformational production assets.

In the March quarter 2019, the company’s Board held a strategic review of the Group’s assets and forward strategy. The Board of the company has adopted a balanced strategy with a clear hierarchy for priority uses of capital. In the March quarter 2019, the company continued to evaluate critical field information and work with counterparties for delivering the KAR’s stated near-term strategy of purchasing a quality oil and gas production asset. The cash balance stood at A$322 Mn as at 31 March 2019. Adding to that, the company currently holds almost all its cash in USD. The net cash used in the operating activities stood at A$7.024 million after settling major payments for exploration and evaluation of A$3.109 Mn.


Cash Flow Statement (Source: Company Reports)

What to Expect: The company’s production and development acquisition strategy are focused on offshore opportunities in Brazil, where KAR has an operational presence. With respect to Santos Basin project, the company mentioned that the initial focus of the project is the preparation of a Development Plan for the Neon light oil field for submission to the ANP during the September 2019 quarter.

Stock Recommendation: The company reported a gross margin of 100% in 1H FY19 as compared to the industry median of 52.5%. It posted a current ratio of 47.23x in 1H FY19 against the industry median of 1.28x, which represents that the company is well-positioned to pay its short-term obligations in comparison to the peer group. The asset to equity ratio stood at 1.07x in 1H FY19 against the industry median of 1.98x.Currently, the stock is priced close to a 52-week high of $1.265. Hence, considering the aforesaid parameters and current trading level, we give a “Hold” recommendation on the stock at the current market price of A$1.210 per share (down 1.626% on 24^th July 2019).

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