Stocks’ Details

Cooper Energy Limited 

FY20 Result Highlights: Cooper Energy Limited (ASX: COE) is a leading gas and oil exploration and production company in south-east Australia. The company recently released its FY20 results wherein it reported total production of 1.56 MMboe, up 19% on the previous year. Further, the company reported sales revenue of $78.1 million, up 3% on FY19, driven by a 22% increase in revenue from gas, offset by a 38% contraction in oil revenue due to lower prices and production. One of the major highlights of FY20 was the acquisition of Minerva Gas Plan, which provided the company access to a low-cost processing hub for offshore Otway Basin gas. At the end of FY20, the company had Proved and Probable Reserves of 49.9 million boe. For the full year, the company incurred a statutory loss after tax of $86 million, down from the loss of $12.1 million in FY19, mainly due to the non-cash impairment expense of $107.5 million incurred in FY20.

FY20 Key Highlights (Source: Company Reports) 

Outlook: In FY21, the company expects its total production to exceed the FY20 production level due to the contribution from Sole gas field. The company also expects its revenue and cash flow to increase in FY21. For the next 12 to 18 months, the company is focussed on completing the necessary technical and commercial analysis and review assurance foe its Athena Gas Plant. The capital expenditure in FY21 is expected to be between $50 to $58 million. 

Vanguard Group Became Substantial Holder: Vanguard Group recently became a substantial holder in the company by holding 82,422,634 ordinary shares in the company. Vanguard Group now holds 5.067% voting power in the company.

Key Risks: The company is exposed to the risks and uncertainties caused by the COVID-19 pandemic as it can indirectly impact the energy prices, supply chains and can cause restrictions on travel. The company is also exposed to the risk of fluctuations in the prices of gas and oil.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the last three months, the stock of COE has corrected by 15.12% and is inclined towards is 52 weeks low price of $0.320, offering a decent opportunity for accumulation. On the technical analysis front, the stock has an immediate support level of ~$0.34 and a resistance level of ~$0.42. For FY20, the company’s current ratio stood at 2.33x, higher than the industry median of 1.07x, demonstrating that the company is well-equipped to pay its short-term obligations. We have valued the stock using an EV/EBITDA multiple based illustrative valuation method and have arrived at a target price with low double-digit upside (in percentage terms). For the purpose, we have taken peers like Senex Energy Ltd (ASX: SXY), Z Energy Ltd (ASX: ZEL) and Energy Resources of Australia Ltd (ASX: ERA), to name few. Considering the company’s decent production performance in FY20; expected rise in the FY21 revenue, production and cashflow; decent liquidity position, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.355, down by 2.74% on 4 September 2020.

Karoon Energy Ltd 

Adoption of ‘Successful Efforts’ Accounting Method: Karoon Energy Ltd (ASX: KAR) is an oil and gas exploration company with a market capitalisation of $417.87 million as on 4 September 2020.  On 28 August 2020, the company announced that it has adopted ‘Successful Efforts’ accounting treatment to provide enhanced transparency in the financial performance and position of the company. The company believes that this method will help it in achieving its corporate vision to become a global exploration and production company. As a result of the adoption of a new accounting method, the company expects to recognise an expense of A$73.4 million in relation to drilling the Marina-1 exploration well In Block Z-38 during FY20 and it also expects to recognise an expense of A$18.5 million resulting from writing down its Peruvian inventory holdings. The company is expected to release its FY20 results on 28 September 2020. 

Acquisition of Baúna field: The company recently announced that its wholly-owned subsidiary, Karoon Petróleo & Gás Ltda, has reached a binding deal to modify the sale and purchase agreement to own 100% operating interest in the Baúna field, located in the Santos Basin. As per the revised terms of the deal, the previously announced “headline” of US$665 million consideration is now split into US$285 million of “contingent” consideration and US$380 million of “firm” consideration. This acquisition is expected to deliver material operational and logistical synergies for the potential development of the company’s existing southern Santos Basin assets. The company expects the acquisition to complete in Q3 CY20.

June 2020 Quarter Highlights: During the June 2020 quarter, the company produced 1.46 million barrels of oil at an average production rate of 16.1k barrels a day. Over the quarter, the company expensed $323k on exploration and evaluation activities. The net cash used in operating activities stood at $6.7 million in June quarter. As at 30 June 2020, the company had cash at bank of A$432 million.

Cash Flow Highlights (Source: Company Reports)

Key Risks: The company is exposed to the risks of volatile market conditions for oil and gas, which could affect the company’s ability to attract capital and may cause a variable return on its operations. Further, the company is exposed to social, political, and geographical risks associated with multinational operations.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: On a YTD basis, the stock KAR has corrected by 34.63%, however in the last three months it has increased by 23.77%. Currently, the stock is trading below the average of its 52-week trading range of $0.340-$1.435. On the technical analysis front, the stock has a support level of ~$0.55 and a resistance level of ~$1.09. We have valued the stock using the price to earnings multiple based illustrative valuation method and have arrived at a target price with low double-digit upside (in percentage terms). For the purpose, we have taken peers like Cooper Energy Ltd (ASX: COE), Z Energy Ltd (ASX: ZEL) and Oil Search Ltd (ASX: OSH), to name few. Considering the aforesaid facts, the expected benefits from Baúna acquisition, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the market price of $0.76, up by 0.662% on 4 September 2020.

Stanmore Coal Limited 

FY20 Results Highlights: Stanmore Coal Limited (ASX: SMR) is an Australian coal company with a market capitalisation of $200.1 million as on 4 September 2020. For the year ended 30 June 2020 or FY20, the company reported total revenue of ~$364.48 million and a net profit of $34.89 million. The company’s full-year coal production stood at 2.39Mt, higher than the guidance of 2.35Mt. One of the major highlights of FY20 was the completion of Golden Investments (Australia) Pte Ltd on-market takeover, resulting in an increased shareholding of 75.33%. The company recently changed its financial year-end date from 30 June to 31 December. The total recoverable coal reserves across all tenements currently stand at 167 million tonnes and total marketable coal reserves at 130 million tonnes.

FY20 Results (Source: Company Reports)

June 2020 Quarter Update: For the June 2020 quarter, the company reported total ROM coal production of 638kt and total saleable coal production of 496Kt. Coal mining and production for the quarter was low as compared to prior quarters as SMR managed the impacts of reduced sales from COVID-19 by investing in overburden in advance to balance coal stockpile levels. During the quarter, the company signed a non-binding term sheet with its parent entity, GEAR, in respect of a replacement of US$40 million term loan facility. 

Management Changes: Recently, the company announced that its CEO Craig McCabe has resigned from the company. The company has appointed Mr. Marcelo Matos as the interim CEO of the company.

Key Risk: As a coal producing company, SMR is exposed to the risk of fluctuations in coal prices. Further, the company is exposed to the risks related to the volatility in the demand for coal. As coal sales for export are denominated in US$, the company is also exposed to volatility in the US$: A$ exchange rates.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of SMR has corrected by 18.68% in the past three months and is inclined towards its 52 weeks low price of $0.500, offering an opportunity for accumulation. On the technical analysis front, the stock has a support level of ~$0.6 and a resistance level of ~$1.01. For H1FY20, the company’s current ratio stood at 1.64x, higher than the industry median of 1.09, demonstrating that the company is well equipped to pay its short-term obligations. We have valued the stock by using the price to earnings multiple based illustrative valuation method and have arrived at a target price with low double-digit upside (in percentage terms). For the purpose, we have taken peers like New Hope Corporation Ltd (ASX: NHC), Metro Mining Ltd (ASX: MMI), Whitehaven Coal Ltd (ASX: WHC), to name few. Considering the company’s decent production performance in FY20, recently completed Golden Investments (Australia) Pte Ltd on-market takeover, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.725, down by 2.027% on 4 September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.