Cooper Energy Limited

COE Details

Significant Growth in Production and Revenues: Cooper Energy Limited (ASX: COE) is an upstream oil and gas exploration and production company with a purpose to secure, find, develop, produce, and sell hydrocarbons. The company’s operations and interests include offshore gas and gas liquids production in the Otway Basin, Victoria, from the Casino, Henry, Netherby and Minerva gas fields. The Company's segment includes Cooper Basin, South-East Australia, and Corporate and Other. COE has registered a robust growth in its production and revenues during 1HFY21. The total production in 1HFY21 has seen a growth of 82% YoY at 1.2MMboe and the revenues were grown by 24% YoY to %48.6mn during the same period.  

Higher Gas Production Expected after Reconfiguration: The profits were impacted by reconfiguration of OGPP in the 1HFY21 but with the commissioning of Sole GSAs and reconfiguration of Orbost Gas Processing Plant (OGPP), the company is expecting a higher production of Gas, going forward which may result in recovering losses.

Gas Production and Sales Volume Growth (Source: Company Reports)

Key Risks: COE is present in exploration of Oil & Gas, so there is always a risk of high operational cost which may impact the financial of the company severely. Secondly, it operates under highly regulated environment and requires government permissions for any expansions, therefore any delay in permissions may impact the financials of the company.

Outlook: As per COE guidance for FY21, the company is expecting its production to reach in the range of 2.7-2.9 MMboe and sales volume in the range of 2.9 – 3.1 MMboe. The company is working towards increasing gas production rates, going forward, with the commencement of Sole GSAs and reconfiguration of OGPP. As per the management comments, COE would be supplying material gas volumes to domestic customers under long-term gas sales agreements and is expecting higher gas sales volumes and net cash margins generated from Sole.   

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, COE has decreased by 6.06% and by 17.33% in the last three months. The current market capitalization of COE stands at $505.61mn as on 5 March 2021. The stock is currently trading below the average 52-week price level range of $0.295-$0.515. On the technical analysis front, the stock has a support level of ~$0.297 and resistance of ~$0.330. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some premium as compared to its peer median, considering an increase in revenues and production in 1HFY21 and positive outlook. For the purpose we have taken peers Peninsula Energy Ltd (ASX: PEN), Woodside Petroleum Ltd (ASX: WPL), Empire Energy Group Ltd (ASX: EEG). Considering an increase in production and revenues in 1HFY21, positive outlook, completion of reconfiguration at OGPP, valuations, and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.31 as on 5 March 2021.

COE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Horizon Oil Limited

HZN Details

A Look at 1HFY21 Key Results: Horizon Oil Limited (ASX: HZN) is an Australia-based company engaged in petroleum exploration, development, and production. The company's segments include New Zealand exploration and development, China exploration and development and All other segments. The company has posted a revenue of US$26.23mn in 1HFY2120 as compared with US$52.67mn in 1HFY20. As per the company reports, HZN has offset the lower oil prices affect by reducing its operational costs. Cash operating costs for the 2020 calendar year reduced 19% to US$15.35/bbl (including workover costs) driven by cost reduction initiatives implemented in response to the changed economic conditionsIn 1HFY21, HZN has posted a net profit of US$4.71mn. During 1HFY21, HZN has reported a positive cash flow from operating activities of US$10.0mn in a low oil price environment which indicates the resurgance of company’s base business. The company has reported a net cash of US$10mn at 31 December 2020, an increase of US$9.5mn during the half year.

1HFY21 Key Highlights (Source: Company Reports)

Buy Back of Shares: As per the company reports on 17^th February 2021, HZN has bought back 442,205 shares from the market for a total consideration of $36,754.75, depicting that the management remains confidence on future performance of the company.

Key Risks: HZN is present in oil exploration so there is always a risk associated with inaccurate reserve estimates which may impact the profitability of the company. HZN operates under highly regulated environment and requires permission for expansion, any delay in securing permissions may lead to financial losses for the company.

Outlook: HZN is looking to invest in its organic growth through developing WZ6-12 infill wells, WZ12-8E in CY2021. As per the company guidance, HZN is expecting a production volume in the range of 1.3-1.4mmbbls, sales volume in a range of 1.2-1.3mmbbls, revenue in a range of US$55-US$60mn and EBITDAX in a range of US$25-US$35mn during FY21.    

Stock Recommendation: In the last one month, HZN has increased by 13.51% and by 29.23% in the last three months. The current market capitalisation of HZN stands at $108.06mn as on 5 March 2021. The stock is currently trading above the average 52-week price level range of $0.042-$0.095. On the technical analysis front, the stock has a support level of ~$0.078 and resistance of ~$0.093. On the valuation front, the stock is trading at a P/BV multiple of 0.9x as compared to the industry median of 1.8x on TTM (Trailing Twelve Months) basis. Considering a decent balance sheet in 1HFY21, positive outlook, maintaining lower operational expenditure, valuation on TTM basis, current trading levels and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.084, up by 1.204% as on 5 March 2021.

HZN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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