Cooper Energy Limited

Strong performance on the back of improving financials: Cooper Energy Limited (ASX: COE) is into discovery, commercialisation as well as the sale of gas to south-east Australia which largely helps the company in generating its revenue. Gas accounts for the major part of the company’s sales revenue, production and reserves. The group is known for the defensive nature of assets despite being in a small-cap space.


Key Metrics (Source: Company Reports)

The company’s sales revenue stood at $67.45 million in FY18, up by 73%, Y-O-Y primarily because of increased gas volumes as well as assisted by elevated oil and gas prices. The company’s statutory profit of $27.0 million also consists of significant items of $17.2 million, including gain on sale of Orbost Gas Plant. Production of the company went up by 54.0%, with full-year contribution from gas assets acquired in FY17. Among the key ratios, the operating margin improved significantly by 62.8% Y-O-Y mainly driven by higher revenues. The asset turnover, Pre-Tax ROA, and ROE improved by 0.7%, 6.8% and 12.6% Y-O-Y, respectively.

Key Focus Areas for FY 2019: The outlook of the company in FY19 includes completion of the Sole project scheduled for June, preparation for Manta drilling, VIC/P72 study, and analysis. FY19 is expected to be primarily a year of consolidation for the company.

Also, the current ratio increased by 18.7% in FY18 as compared to FY17 driven by a robust increase in current assets on the back of improving cash & cash equivalents.

The stock is currently trading at $0.450 per share. On the backdrop of the above factors, we maintain our “Buy” rating on the stock at the current market price.

Karoon Energy Limited

Significant improvement in the current ratio: Karoon Energy Limited (ASX: KAR) is into oil and gas exploration. The company seeks for high equity interests in early stage exploration opportunities. The company in its release dated December 20, 2018, announced the appointment of new Independent Non-Executive chairman, Mr. Bruce Phillips effective from January 1, 2019.


Financial Results (Source: Company Reports)

The revenue of the company dropped to $0.71 mn in FY18 as compared to $0.86 mn in FY17, a decrease by 17% approximately on the back of lower interest income from unrelated entities. The net loss of the company increased to $181.77 million in FY18 as compared to $81.52 mn in FY17. The loss is however majorly attributable to the impairment of assets. The working capital decreased from $366.5 million in FY17 to $329.0 million approximately in FY 2018, predominantly as a result of expenditure incurred on exploration and evaluation assets.

Fundamentally, the current ratio improved by 64.7% and stood at 50.01x in FY18 as compared to 30.37x in FY17 on the back of reduced trade payables.

Decent Portfolio to underpin KAR’s future: The outlook of the company for FY19 is based on the robust portfolio of exploration and pre-development assets. Meanwhile, the stock has delivered a YTD return of 6.67%. It has a market capitalisation of $216.23 million. Therefore, as a result of the improvement in the liquidity ratios as well as decent FY 2019 outlook, we maintain our “Buy” rating on the stock at the current market price of $0.895 per share.  
 

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