Leigh Creek Energy Limited

Completion of PCD: Leigh Creek Energy Limited (ASX: LCK) is in the exploration and development of energy and minerals. The company announced that it has finalised the thyssenkrupp Concept Select Study on ISG to Fertiliser. This follows the successful completion of the Pre-Commercial Demonstration (PCD), which produced a flow rate in excess of 1tcf p/d from a single gasifier and the Concept Select Study by leading global fertiliser technology company Thyssenkrupp. The Leigh Creek Energy Project (LCEP) will further disrupt the Australian fertiliser market through some key advantages over existing and planned producers, which includes lower gas feedstock prices, certainty of gas supply, stable gas feedstock prices and close proximity to pivotal rail hub point for nationwide distribution.
 

Governments' Recognition of LCEP and 2P Reserves and The Notice Of AGM: LCK, recently announced that its large 2P gas reserve, and progress advancing the commercialisation stages of Leigh Creek Energy project (or LCEP), have been acknowledged by two high level, government agencies in Australia and China. It was further stated that the acknowledgement by the internationally recognised federal government agencies reflects a significant third-party validation of LCK’s technology, project, corporate operations, and pathway to monetising largest uncontracted 2P gas reserve available to the east coast of Australia.The2019 Annual General Meeting of the company is to be held on November 21, 2019 in order to discuss some key agendas.

FY19 Operational and Financial Performance: The consolidated operating loss of the financial year 30 June 2019 rose to $9,534,857, which was mainly due to a rise in depreciation, employee benefits expense and other expenses, and a fall in other income. The company completed a $3.2 million capital raise with professional, sophisticated and institutional investors, with 14,322,222 ordinary shares issued at a price of $0.225 per share. The company has a working capital facility with the Commonwealth Bank of Australia (CBA) to bring forward access to refundable R&D tax concessions.


Financial Performance (Source: Company Reports)

Key Margins:The company showed a CAGR of 44.22% in revenue from the time span of FY16 to FY19, therefore, it can be said that the company possesses decent capabilities to generate revenues which is likely to help it in achieving growth in the long-term. The current ratio of the company stands at 1.82x, higher than the industry median of 1.21x, suggesting that the company is sufficiently liquid, and is in the position to pay its short-term obligations. The company also has a lower Debt to Equity multiple of 0.13x than the industry median of 0.24x, indicating the lower debt on the balance sheet. The company can leverage over the low debt levels and may seek growth opportunities.

Stock Recommendation: The stock of LCK has witnessed a fall of 29.63% in the span of the previous three months, while in the time frame of the past one month, the stock has fallen by 13.64%. As per the ASX, the stock price of LCK is trading towards its 52-week lower levels, offering a decent opportunity for accumulation. Considering the above-stated facts and current trading levels, we give a “Hold” recommendation on the stock at the current price of $0.175 per share, down 7.895% on October 25, 2019.

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