Copper Energy Limited

COE Details

Recent Business Updates: Cooper Energy Limited (ASX: COE) commercializes hydrocarbons to South-East Australia, produces crude oil from the Cooper basin and gas from the Otway and Gippsland basins.

• CEO Appointment: As announced on 24 December 2021, COE appointed Mr. Daniel Young for the role of Chief Financial Officer (CFO), effective by May 2022. Daniel has been in energy industry with over 25 years of global exposure in Australia, Europe, Asia Pacific, Middle East, and Africa.
• Operational Update: On 13 January 2022, COE released operational update highlighting an average processing rate of 44.3 TJ per day for December at the Orbost Gas Processing Plant. COE commenced the Athena Gas Plant processing and began the Dombey 3D seismic survey in the onshore Otway Basin.

Q1FY22 Quarterly Update

• Production and Sales: Total production increased by 23% to 0.81 MMboe and sales volume increased by 6% to 1.03 MMboe. Subsequently revenue enlarged by 2% to $48.1 million.
• Project Commissioning: Athena Gas Plant has commissioned with processing of Otway Basin gas remains on schedule for Q2FY22.
• OGPP Performance and Commencements: The average processing rate at Orbost Gas Processing Plant (OGPP) remained at 39 TJ per day and its Phase 2B works commenced.
• Purchases and Arrangements: Third-party gas purchases was reduced, accounting for only 22% of total gas sales relative to 33% in Q4FY21. Sole amendments and New Otway Basin Gas Sales Agreement were arranged during the period.
• Financial Position: Cash balance for the period stood at $95.9 million, up by 5% from previous quarter. Net debt clocked $115.1 million, down by 9% sequentially.

FY21 Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

High downside volatility in gas prices can substantially affect the top-line performance. The average realised price shrunk by 2% for Q1FY22 to $7.41/GJ. The company may fall into a liquidity crunch considering the high investment requirements and falling credit facilities.

Outlook

The processing of the Otway Basin Gas stands on schedule for Q2FY22 following the commissioning of Athena Gas Plant. OGPP is expected to install filtration system by Q3FY22. The Dombey 3D seismic acquisition in PEL 494 is estimated to commence from mid Q2FY22 through Q3FY22.

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

The stock of COE gave a negative return of ~26.923% in the past one year. The stock is currently trading above to the 52-weeks’ average price level band of $0.195 - $0.398. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a downside of mid-single-digit (in percentage terms). The company might trade at a slight discount to its peers, considering recent labor shortage challenges and potential liquidity crunch. For valuation, few peers like Santos Ltd (ASX: STO), Senex Energy Ltd (ASX: SXY), Woodside Petroleum Ltd (ASX: WPL) and others have been considered. Given the high downside volatility in gas prices, potential liquidity crunch, trading levels close to 52 weeks’ average price, and downside indicated by valuation, we give suggest investors to book profits and give a “Sell” recommendation on the stock at the closing market price of $0.300, up ~5.26% as of 13 January 2022.

COE Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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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