88 Energy Limited

88E Details
 
Off-Market Takeover Bid By 88 Energy Ltd for XCD Energy Limited: 88 Energy Limited (ASX: 88E) is engaged in the exploration of oil and gas. As on 28 May 2020, the market capitalization of the company stood at $35.55 million. The company has completed the dispatch of its replacement bidder’s statement and has offered off-market takeover bid for all the fully paid ordinary shares and listed options in XCD Energy Limited. The offer is scheduled to close on 25 June 2020.

Operational Update: During the quarter ended 31 March 2020, the company Charlie-1 well reached its Total Depth of 11,112. It has also proved its presence of mobile hydrocarbons, in the form of condensate gas, in the Torok Formation in both the Middle Stellar and Lower Stellar targets. However, in the recent update, the reported average API gravity of liquid hydrocarbon in the Torok Fm of approximately 50 degrees. 88E has marked its preferred drilling location at ENE heavenly-1, which have several advantages over the Charlie-1 location. 

Quarterly Highlights: During the quarter ended 31 March 2020, the company has successfully raised $5 million with the placement made to domestic and international institutional and sophisticated investors through the issue of 238 million ordinary shares. In the same time span, the company reported cash used in operating activities of $1.2 million and cash reserves of $28.1 million.


Quarterly Cash Flow Statement (Source: Company Reports)

Financially Stable Balance Sheet and Sufficient Liquidity Levels: During 1H20, gross margin of the company witnessed an improvement over the previous half. In the same time span, Assets/Equity ratio of the company was 1.44x, lower than the industry median of 2.14x and Debt/Equity ratio of the company was 0.34x as compared to the industry median of 0.44x. This indicates that the business is financed with a more significant proportion of investor funding and a small amount of debt, resulting in a financially stable balance sheet. In the same time span, current ratio of the company was in-line with the industry median and stood at 1.06x. This indicates that the company is liquid enough to pay off its current liabilities using its current assets.

Stock Recommendations: The company has confirmed that it did not witness any impact of COVID-19 on its program to date and has taken appropriate measures to proactively address any potential impacts. As per ASX, the stock of 88E is trading at attractive levels, close to its 52-week low of $0.005 and thus holds further potential for growth. On TTM basis, the stock is trading at a price to book value multiple of 0.6x, lower than the industry median (Oil & Gas) of 1.2x, indicating that the stock is undervalued at the current juncture. Considering the current trading levels, improvement in key margins, softer market conditions due to the outspread of the global pandemic, and lower price to book value multiple, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.006, up by 20% on 28 May 2020. 

 
88E Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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