Stocks’ Details

Comet Ridge Limited                       

Mahalo Gas Project Receives Petroleum Lease Approvals: Comet Ridge Limited (ASX: COI) is engaged in the exploration of oil and gas. As on 8 July 2020, the market capitalization of the company stood at ~$78.11 million. The company has recently announced that Mahalo Gas Project has been granted Queensland State Government Petroleum Leases- 1082 and 1083 for a term of 30 years. This project is held 40% by Comet Ridge Limited, 30% by Santos and 30% by APLNG. These Petroleum Lease awards are the final regulatory approval required for the project to move forward to production. The Mahalo Gas Project is well-positioned to deliver meaningful gas production into the domestic and export market.

Quarterly Update: During the March 2020 quarter, the company signed an agreement with LogiCamms to consider an export solution via building a new pipeline. The company is also working with JV partners to drive the optimum development outcome for the Mahalo Gas Project. During the quarter, COI used net cash of $533 million for operating activities and reported a cash balance of $8.981 million.

Net Cash Used in Operating Activities (Source: Company Reports)

Key Risks: The company is not currently conducting field operations and is not planning field operations for the period as the COVID19 virus is directly impacting the Australian economy. As a result of COVID-19 and the current low oil price, COI has slowed the rate of expenditure to further support the business. This may impact the operational performance of the company.

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

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

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

Stock Recommendation: As per ASX, the stock of COI gave a negative return of 47.89% on the YTD basis and a negative return of 10% in the past one month. The stock is trading at attractive levels, close to its 52-weeks’ low level of $0.048 but holds a limited potential for growth. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and have arrived at a correction of middle single-digit (in percentage terms). Considering the current trading levels, volatility in the returns in the past one month, and the softer market conditions due to the COVID-19 crisis, we suggest investors to keep an eye on the business activities and give a watch stance on the stock at the current market price of $0.090, down by 9.091% on 8 July 2020.

Cooper Energy Limited

Sole Gas Project Update: Cooper Energy Limited (ASX: COE) is an upstream oil and gas exploration and production company whose primary purpose is to secure, find, develop, produce, and sell hydrocarbons. As on 8 July 2020, the market capitalization of the company stood at ~$609.99 million. The company has recently provided an update on the progress of commissioning activities at the Orbost Gas Processing Plant which is operated by APA Group. Since 20 May 2020, the plant is achieving a progressive sustained increase in output rates with the ultimate target of 68 TJ/day. The output has averaged 34 TJ/day, demonstrating the plant’s capability to maintain daily production of 35 TJ to 40 TJ.

Quarterly Update: During the quarter ended 31 March 2020, the company produced 0.28 million boe and generated $15.0 million of revenue. In the same time span, gas revenue of the company went up by 19% to $13.3 million. The company also reported a healthy balance sheet with cash balance of $142.5 million and net debt of $84.4 million.

Quarterly Update (Source: Company Reports)

Key Risks: The company is engaged in the exploration, which is a speculative activity with an associated risk of discovery to find oil and gas in commercial quantities and a risk of development. If COE is unsuccessful in locating and developing or acquiring new reserves and resources that are commercially viable, this may have a material adverse effect on future business.

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

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

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

Stock Recommendation: The company is expecting a long supply opportunity with tight long-term supply and re-emerging increased pricing. As per ASX, the stock of COE is trading at attractive levels, close to its 52-weeks’ low level of $0.340, proffering a decent opportunity for accumulation. We have valued the stock using EV/EBITDA Multiple Based illustrative relative valuation method and have arrived at an upside of lower double-digit (in percentage terms). For the said purposes, we have considered Senex Energy Ltd (ASX: SXY), New Hope Corporation Ltd (ASX: NHC) and Viva Energy Group Ltd (ASX: VEA) as peers. Considering the current trading levels, guidance for FY20, and decent operational performance in the March quarter, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.390, up by 4% on 8 July 2020.

Senex Energy Limited

Value Proposition from Senex Transformation: Senex Energy Limited (ASX: SXY) is engaged in the production, exploration, and development of petroleum. As on 8 July 2020, the market capitalization of the company stood at ~$328.01 million. The company is generating cash from the high-return portfolio and project execution excellence, driving shareholder returns. The company has resilient cash flows, low cost operations and fixed price gas contracts and stable cash flows from Surat and Cooper Basins. SXY retains a robust balance sheet with a Net Debt/EBITDA ratio of less than 0.5x.

Quarterly Update: During the quarter ended March 2020, the company reported total production of 589 kboe of gas and made a sale of 636 kboe. In the same time span, revenue of the company stood at $33.3 million.

Key Performance Metrics (Source: Company Reports)

Guidance: Following strong production performance across Senex’s Surat Basin assets, and assuming continued normal operations in the current pandemic environment, SXY has increased its full-year FY20 production guidance from 1.8 – 2.0 mmboe to 2.0 – 2.1 mmboe. It also expects to report EBITDA in the range of $45 – 55 million.

Key Risks: The production growth of the company is dependent on its ability to successfully discover, develop and deliver new resources and reserves. Exploration and drilling activities and outcomes are highly uncertain and dependent on capital funding and acquisition.

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

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

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

Stock Recommendation: The company has completed 80 well Surat Basin drilling campaign and has also built and commissioned natural gas facilities at Roma North and Atlas. As per ASX, the stock of SXY gave a return of 40.63% in the past three months and is inclined towards its 52-week low of $0.120, proffering a decent opportunity for accumulation. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at an upside of lower double-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months, upgraded guidance and positive long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.225 on 8 July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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