Byron Energy Limited

BYE Details

Q2FY21 Trading Update: Byron Energy Limited (ASX: BYE) is engaged in the gas and oil exploration, development, and production in the shallow waters in the Gulf of Mexico, USA. As on 15 February 2021, the market capitalisation of the company stood at ~$161.24 million. During Q2FY21, the company recorded net sales volume of 111k barrels of oil and 1,742k mmbtu of gas versus 99k barrels of oil and 529k mmbtu of gas for the September 2020 quarter. The company reported net revenue for the December 2020 quarter at ~US$9.2 million as compared to net revenue ~US$5.1 million for September 2020. The growth in net sales revenue was due to full production from SM58 G1 well, gas, and oil sales from the SM58 G2ST well (started on 1 November 2020) and higher realised prices of oil and gas during the December 2020 quarter. In 2QFY21, BYE and Crimson Midstream Holdings LLC agreed to fix a Production Handling Agreement (PHA) fees at US$15/bbl as against ~US$25/bbl decided as per the original agreement until at least the next PHA fees adjustment date being March 2021. The company collected cash receipts of $7,702k from the customers during the quarter. The company generated negative net operating cash flows of US$9.38 million and held US$1.49 million of cash and cash equivalents at the end of the quarter.    

Oil & Gas Production Summary, Q2FY21 vs Q1FY21 (Source: Company Reports)

Outlook: The company has accelerated its permitting efforts due to an anticipated regulatory change post USA 2020 election. On South Marsh Island (SMI) 58, BYE has initiated permits for several new wells on SM58 and 4 adjacent SMI leases for which it anticipates resumption of drilling in FY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (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: The stock of BYE gave a negative return of 14.28% in the past three months and a negative return of 28.57% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $0.105. The stock of BYE has a support level of ~$0.138 and a resistance level of ~$0.171. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at a slight premium as compared to its peer average, considering higher production of oil and gas and net revenue growth for Q1FY21 and Q2FY21. For the purpose, we have taken peers like Byron Energy Limited (ASX: BPT), Vintage Energy Limited (ASX: VEN), Senex Energy Limited (ASX: SXY) to name a few, which come under oil and gas sector. Considering the current trading levels, decent results of Q2FY21, drilling permits and exploration planned for FY21, and valuation, we give a ‘Speculative Buy’ recommendation on the stock at the current market price of $0.150, down by 3.226% on 15 February 2021.

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

Lepidico Limited

LPD Details

 Preliminary Environmental Permit for Phase I: Lepidico Ltd (ASX: LPD) is involved in the mining, exploration, and development of lithium chemicals and owns L-Max®, S-Max® and LOH-Max® proprietary technologies. As on 15^th February 2021, the market capitalisation of the company stood at ~$119.32 million. On 15^th January 2021, the company announced that the Preliminary Environmental Review (PER) for the Phase 1 Chemical Plant site within the Khalifa Industrial Zone Abu Dhabi (KIZAD) has been sanctioned by the Environment Agency of Abu Dhabi (EAD). LPD has received all permits for the re-development of the Helikon 1 and Rubicon mines in Namibia and the development of a mineral concentrator at Rubicon. It has received mining licence (ML204), Environmental Compliance Certificate (ECC) and water extraction permit.

Q2FY21 Results: During December 2020 quarter, the company entered a strategic collaboration with Cornish Lithium Limited for licence contract for LOH-Max® and L-Max® technologies for $4 million. LPD received all permits for project development for Karibib project to start in Namibia. During the quarter, the company acquired Bright Minz Pty Limited via the purchase of all the issued capital of Bright Minz. With this acquisition, rights to use LOH-Max® process technology (developed by Bright Minz) royalty-free is with LPD. LPD received $4,084k cash receipts from customers during Q2FY21. LPD held cash of $3.1 million and had no debt as on 31 December 2020. The company received a US patent for its process technology for lithium recovery from phosphate minerals in mid-January 2021.

Cash Flows from Operating Activities, Q2FY21 (Source: Company Reports)

Outlook: Following the close of EPCM tender process for both the Karibib concentrator and Abu Dhabi chemical plant, the company remains on track for the contractor selection for the March 2021 quarter. The company is in talks with up to 6 lithium hydroxide and 4 caesium consumers based on a customer request received for complete analysis to be submitted by LPD by early 2021. The company is also manufacturing samples of caesium sulphate and rubidium sulphate for dispatch to consumers in Q3FY21 from Project Phase I envisaging supply constraints for these metals in 2021.

Stock Recommendation: The stock of LPD gave a positive return of 212.5% in the past three months and a positive return of 212.5% in the past six months. The stock is currently trading slightly above the average 52-weeks’ price band of $0.004-$0.037. The stock of LPD has a support level of ~$0.0219 and a resistance level of ~$0.0288. Considering the significant returns of 3 months and 6 months, negative ROE, and net loss-making business during FY15-FY20, we are of the view most of the positive factors of the company have been factored in at current juncture. Hence, we suggest investors to wait for better entry levels and give an ‘Expensive’ rating on the stock at the current market price of $0.025, up by 8.695% on 15 February 2021.

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

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