Stocks’ Details

Karoon Energy Ltd

FY20 Financial Highlights: Karoon Energy Ltd (ASX: KAR) is engaged in the investment in hydrocarbon exploration and evaluation in Australia, Brazil, and Peru. As on 28 September 2020, the market capitalization of the company stood at ~$409.57 million. Despite the unprecedented challenges from the COVID-19 pandemic, KAR emerged in a decent financial position, enabling the company to position itself to achieve its core strategic goals. At the end of FY20, the company reported an increase in cash balance to $431.90 million, up from $326 million in FY19. During FY20, the company witnessed a loss of $127.82 million, up from $18.87 million in FY19. This was mainly due to higher exploration and evaluation expenditure and transition costs associated with the Baúna acquisition. In the same time span, KAR reported a cash outflow of $99.96 million as compared to $22.26 million in FY19. This was mainly because of payments for exploration and evaluation expenditure.

FY20 Financial Highlights (Source: Company Reports)

Future Expectations: The company is transforming from a successful oil and gas explorer to a global exploration and production company. It is likely to improve its capital allocation and operational decision-in the coming years.

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

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

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

Stock Recommendation: Despite the global turmoil and slashing down of oil prices, the company is working on delivering decent outcome for the shareholders. It has shifted its focus to the acquisition of a production asset from identifying prospective opportunities to provide a platform for future growth. As per ASX, the stock of KAR gave a return of 82.72% in the past six months and a return of 25.42% in the past three months. The stock is also inclined towards its 52-weeks’ low level of $0.340, proffering a decent opportunity for the investors to enter the market. On a technical front, the stock of KAR has a support level of ~$0.421 and a resistance level of ~$1.26. We have valued the stock using the price to earnings multiple based illustrative relative valuation approach and have arrived at a target price of lower double-digit upside (in % terms). Considering the current trading levels, decent returns in the past three months, modest long-term outlook amidst softer market conditions, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.735, down by 0.676% on 28 September 2020.

Blue Energy Limited

Fast Tracked Domestic Gas Supply and Recovery: Blue Energy Limited (ASX: BLU) is an energy company that undertakes exploration, evaluation, and development of conventional and unconventional oil and gas resources. As on 28 September 2020, the market capitalization of the company stood at ~$99.67 million. The company has announced that the Federal Government has prioritized new gas supply in the North Bowen and Galilee Basins and Beetaloo Basin, where BLU has acreage positions. BLU is likely to bring significant gas potential from these large resource areas, which will encourage expansion and growth of the company. This will also result in economic recovery and help in the future of manufacturing jobs in Australia via the long-term gas supplies.

FY20 Financial Highlights: During FY20, the company reported an increase in total income to $153k, up from $46k in FY19. In the same time span, losses of the company went down to $5.05 million from $5.8 million in FY19.

FY20 Financial Highlights (Source: Company Reports)

Stock Recommendation: The company’s Bowen Basin 2P and 3P Reserves are estimated to be 71PJ and 298PJ, respectively. As per ASX, the stock of BLU gave attractive returns of 66.67% in the past three months and a return of 92.31% in the last one month (as at 25 September 2020). However, the stock of BLU has touched its 52-weeks’ high level of $0.075 and retains limited potential for further growth. On a technical front, the stock of BLU has a support level of ~$0.023 and a resistance level of ~$0.074. On a TTM basis, the stock of BLU is trading at a price to book value multiple of 1.6x, higher than the industry median (Energy) of 1.4x and thus seems overvalued. Considering the current trading levels, attractive returns in the past few months, and higher P/BV multiple, we suggest our investors to wait for the better entry level and recommend an ‘Expensive’ rating on the stock at the current market price of $0.07, down by 6.667% on 28 September 2020.

Buru Energy Limited

Operational Update: Buru Energy Limited (ASX: BRU) is engaged in the exploration, development, and production of Petroleum. As on 28 September 2020, the market capitalization of the company stood at ~$34.57 million. The company has recently announced that it has completed the latest lifting of Ungani crude from CGL storage Tank 10 for a total of 71,038 bbls as compared to the previous lifting of 74,819 bbls in July 2020. The lower production between the two liftings was mainly because of the downtime required to install the ESP. The company has a 50% stake in the revenue share and is estimated in between $1.6 million to $1.7 million. The company has stated that the current field production is ~1,200bop.

Joint Venture with Sipa Resources Limited: The company has recently announced that it has entered an agreement with Sipa Resources Limited to progress exploration activities at Barbwire Terrace Project. The sophisticated basin models of BRU and data sets developed over years of petroleum exploration will enable mineralization at Barbwire Terrace. Under the terms of agreement, BRU will fund 100% of the first $250,000 of on-ground exploration expenditure to earn a 50% interest in the Project.

Half Yearly Financial Highlights: During 1H20, Ungani crude sales stood at $6.3 million from a quantity of ~109,000 bbls at an average FOB Wyndham price of ~$57/bbl. In the same time span, production from the Ungani Oilfield totalled ~100,000 bbls at an average rate of ~1,100 bopd.

1H20 Financial Highlights (Source: Company Reports)

Stock Recommendation: The company quickly responded to the unprecedented global situation and the collapse in oil prices by reducing corporate and operational costs. As per ASX, the stock of BRU gave a return of 9.59% in the past six months and is inclined towards its 52-weeks’ low level of $0.062, proffering a decent opportunity for the investors to enter the market. On a technical front, the stock of BRU has a support level of ~$0.072 and a resistance level of ~$0.119. On a TTM basis, the stock of BRU is trading at an EV/Sales multiple of 1x, lower than the industry median (Oil & Gas) of 20.1x, and thus seems undervalued. Considering the current trading levels, decent returns in the past six months, joint venture with Sipa Resources and long-term growth opportunities, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.08 on 28 September 2020.

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