Carnarvon Petroleum Limited

CVN Details

Awarded Dorado FPSO Contract: Carnarvon Petroleum Limited (ASX: CVN) is mainly involved in the exploration of oil and gas. The company has recently commenced Front End Engineering and Design (FEED) activities for the Dorado oil development. On 23 August 2021, CVN notified that it has awarded a FEED contract for Floating Production, Storage and Offloading (FPSO) facility at the Dorado project to Altera Infrastructure Production AS. The Final Investment Decision (FID) of the project is expected to be taken around mid-2022.

June 2021 Quarter Highlights:

• During the June 2021 quarter, CVN farmed-out a 50% interest in the Buffalo project to Advance Energy Plc.
• CVN selected a jack-up drilling rig for the Buffalo-10 well through a letter of intent with the rig owner.
• Net cash outflow from operating activities stood at $819k for the June quarter, taking the total FY21 operating cash outflow to $3.49 million.
• At the end of the June 2021 quarter, the company had cash of $98.4 million.

Cash Balance Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks associated with the fluctuations in oil and gas prices. CVN is also exposed to the risks and uncertainties caused by the COVID-19 pandemic as it could disrupt the company’s operations.

Outlook: The phased development of the Dorado project is targeting around 150 million barrels of liquids (gross) prior to a later stage of gas export. Further, the Buffalo project is providing CVN an opportunity to deliver a low-cost oil development that is poised to take advantage of a strengthening oil market.

Stock Recommendation: Over the last nine months, the stock has corrected by ~9.25% and is trading lower than the average 52-week price level band of $0.180 - $0.335, offering a decent opportunity for accumulation. On a TTM basis, the stock is trading at a Price to Book multiple of 1.7x, slightly lower than the industry median (oil and gas) of 1.9x, thus seems undervalued. Considering the company’s nil debt, decent operational progress in June 2021 quarter, current trading level, valuation on TTM basis, and key associated risks, we give a “Speculative Buy” rating on the stock at the market price of $0.240 as on 23 August 2021, 10:35 AM (GMT+10), Sydney, Eastern Australia.

Daily Technical Chart, Data Source: REFINITIV 

Cooper Energy Limited

COE Details

FY21 Result Highlights: Cooper Energy Limited (ASX: COE) is an exploration and production company mainly involved in the supply of gas to Southeast Australia.

• Rise in Production and Sales Volume: For FY21, COE reported 69% YoY growth in production to 2.63 MMboe and a 94% YoY growth in sales volume to 3.01 MMboe, supported by the commencement of the Sole Gas Sales Agreements (GSAs) and improving performance at the Orbost Gas Processing Plant (OGPP).
• Decline in Cash Flow: Operating cash flow for FY21 stood at $8.1 million, down by 83% on the previous year, due to OGPP processing rates, OGPP reconfiguration and commissioning costs, and impacts of the Transition Agreement with APA Group (ASX: APA).
• Rise in Underling Net Loss: The company incurred an underlying net loss after tax of $25.9 million in FY21, higher than the loss of $6.6 million in FY20, impacted by higher cost of sales, finance costs and lower oil revenue.
• Cash and Debt Scenario: As at 30 June 2021, the company had cash and cash equivalents of $91.3 million and drawn debt of $218 million.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: COE operates in a highly regulated environment. If regulatory approvals for projects are withheld or take longer than expected time, it could impact the company’s plans and operations. The company is also exposed to the risk associated with the fluctuations of gas prices.

Outlook: For FY22, the company expects its production to be in the range of $3.0 – 3.6 MMboe, representing a growth of 14-37% on FY21. Underlying EBITDAX for FY22 is expected to be between $60 – 70 million, representing a growth of 100 to 130% on FY21.

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

Source: 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: Over the last three months, the stock has corrected by ~25.92% and is inclined towards its 52-weeks low price of $0.195, offering a decent opportunity for accumulation. The stock has been valued using EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ median EV/Sales (NTM trading multiple), considering the rise in underlying loss, increase in net debt, and uncertainty surrounding impact of COVID-19. For the purpose of valuation, peers like Woodside Petroleum Ltd (ASX: WPL), Karoon Energy Ltd (ASX: KAR), Santos Ltd (ASX: STO) have been considered. Considering the rise in FY21 revenue and sales volume, expected growth in FY22 production and underlying EBITDAX, current trading levels, valuation and associated key risks, we give a “Speculative Buy” rating on the stock at the market price of $0.198 as on 23 August 2021, 10:35 AM (GMT+10), Sydney, Eastern Australia.

COE Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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