Cooper Energy Limited

COE Details

Operational Update: Cooper Energy Limited (ASX: COE) commercialises hydrocarbons to south-east Australia, crude oil in the Cooper basin and offshore gas through exploration and production of oil and gases.

• The company has updated a 24% higher average Sole production rate in August than Q4FY21 due to improved performance and stable processing at the Orbost Gas Processing Plant.
• Sole Gas Sales Agreements continued due to high seasonal winter demand, and the Sole gas field is performing in line with expectations.
• The Athena Gas Plant Project has achieved significant progress in August with sales gas from the SEAGas pipeline introduced into the plant.

FY21 Financial Performance:

• In FY21, the company has recorded a substantial rise in production by ~69% to 2.63 MMboe and robust sales volume growth of ~94% to 3.01 MMboe from 1.55 MMboe in FY20.
• The company has reported revenue of $131.7 million in FY21, up by 69% from $78.1 million in FY20.
• However, COE has incurred an underlying loss after tax of $25.9 million in FY21, an increase of 293% from $6.6 million in FY20, impacted by delayed OGPP ramp-up and Transition Agreement arrangements.
• The cash position of the company stood at $91.3 million as of 30 June 2021, with net debt position of $126.7 million.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company’s activities were delayed due to the COVID-19 outbreak in the region resulting in widespread lockdowns and travel restrictions, and still the uncertainty prevails.
• Liquidity Risk- The company requires sufficient liquidity to meet the financial obligation and operational activity and mitigate the working capital risks.

Outlook:

• The company's second-half solid growth momentum is expected to continue in FY22. Further, the company has guided production in FY22 to be between 3.0-3.6 MMboe, Sales volume to be in the range of 7-4.3 MMboe and underlying EBITDA in the range of $60-70 million or a hike of 100-133%.
• The company expects OGPP Phase 2B works to further augment the Group performance.

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: As per a recent update, the company’s substantial holders, L1 Capital Pty Ltd, have increased in their holding to reflect 14.03% voting power, from previous 12.81%. The stock of COE is trading below its average 52-weeks' levels of $0.195-$0.405. The stock of COE gave a negative return of ~4.25% in the past one month and a negative return of ~36.61% in the past one year. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount to its peers' average, considering the uncertainty of the COVID-19 pandemic and increase in underlying loss. For the purpose of valuation, peers such as Woodside Petroleum Ltd (ASX: WPL), Australis Oil & Gas Ltd (ASX: ATS), Senex Energy Ltd (ASX: SXY) have been considered. Considering the current trading levels, indicative upside in valuation, robust growth in top-line, robust growth in sales volume, optimistic guidance for FY22, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.225, as on 10 September 2021.

COE Daily Technical Chart, Data Source: REFINITIV

Micro-X Limited

MX1 Details

FY21 Financial Highlights: Micro-X Limited (ASX: MX1) manufactures ultra-lightweight carbon nanotube-based X-ray products for the healthcare and improvised explosive device imaging security markets in Australia. 

• The company has recorded a decline in revenue by 11% to $3.77 million in FY21, compared to FY20. The delay and reduced commercialisation of new technology has impacted the revenue.
• MX1 has reported an operating loss of $17.743 million in FY21 against $13.371 in FY20.
• In addition, the company has incurred a net loss of $14.731 million in FY21, considering the impact of COVID-19 pandemic over services offered, supply chain, and customers.
• At the end of 30 June 2021, the company has a strong cash balance of $30.14 million and is virtually debt free.

Cash and Cash Equivalent (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has faced the challenge of delay in the supply chain of new technologies during the COVID-19 pandemic that has impacted its financials, and still, the uncertainty prevails.
• Regulatory Risk- To commercialise its product, the company requires regulatory approval, and any delays could impact its operations.

Outlook:

• The company has strategised to monetise the 'First Mover' advantage with successful early commercial domination and expand its market with its four product lines.
• The company is expanding its channel patterns and collaboration to scale up its market.
• MX1 has been awarded $8 million funds for medical research under the Second Phase of the Australian Stroke Alliance Project.

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: As per a recent announcement, the company’s substantial shareholder Perennial Value Management Limited, has increased its holding to 62,041,316 shares with 13.50% voting power. The stock of MX1 is trading below its average 52-weeks' levels of $0.175-$0.450. The stock of MX1 gave a positive return of ~59.45% in the past one year and a negative return of ~13.23% in the past three months. It has a support level of $0.26 and resistance level of $0.3350.  The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers' average, considering the impact on commercialization during the pandemic and negative profitability. For the purpose of valuation, peers such as Nova Eye Medical Ltd (ASX: EYE), Atomo Diagnostics Ltd (ASX: AT1), Cochlear Ltd (ASX: COH) have been considered. Considering the current trading levels, indicative upside in valuation, decent balance sheet, award of funds, increase in product offering, optimistic outlook and the key risks associated with the business, we recommend a 'Hold' rating on the stock at the current market price of $0.295, up by ~5.357% as on 10 September 2021.

MX1 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 for 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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