Energean PLC (LON: ENOG) – Production Outperformed Guidance Across All Countries of Operation

Energean PLC is an FTSE 250 listed exploration and production company focused on the Eastern Mediterranean region. It operates in Greece, Israel, Egypt, and the Adriatic. The Company is also looking to invest in the country's hydrocarbon sector and evaluate a range of onshore and offshore projects.

Technical Outlook for Oil and Gas

(Source: Refinitiv, Research done by Kalkine Group)

On a daily chart, Crude Oil price is sustaining above 50-day EMA and 100-day EMA, indicating the possibility of an upward movement. Furthermore, Crude Oil has recently broken above a downward sloping trendline, indicating bullish momentum in the near term.

(Source: Refinitiv, Research done by Kalkine Group)

On a daily chart, Natural Gas is sustaining above 21-day SMA and 50-day SMA, indicating the possibility of an upward movement. Furthermore, post the recent correction, the stock is taking support near its 21-Day SMA, indicating strength in the commodity. 

Growth Prospects

• Robust Financial Performance: Post the acquisition of Edison E&P, the Company posted robust performance in the first six months of FY21. The production increased to 44.0 kboed (with a 72% gas portfolio). The revenue increased to a record level of USD 206 million while the EBITDAX at USD 75 million.
• Net-zero Commitments: The Company is focusing on reducing its carbon intensity. They successfully reduced the intensity to 18 kgCO2/boe, a 19% decrease against H1FY20 levels. The Company has the best-in-class ESG rating, and it reduced the carbon intensity 15% below the FY21 guidance.
• Improved Workforce: The Company increased its human resources by 70% in August 2021. The Company entered a USD 12 million incentive program with Sembcorp to source workers from less traditional labour markets.
• Strong Guidance: ENOG maintains robust guidance for FY21 amid the revised Karish First Gas Timetable.

(Source: Company Presentation)

Key Risks 

• Delay in Projects: Amid rising cases of Covid-19, the projects could delay due to lockdowns and restrictions, which might affect the Company's growth outlook.
• Geographical Risk: The potential for Israeli gas market oversupply may result in offtake being at the take-or-pay level of existing GSPAs and could result in the failure to secure new GSPAs.
• Integration Risk: Failure to successfully integrate Edison E&P into Energean’s day-to-day business activities resulting in limited financial, social, and environmental benefits.
  

Now we will analyse some key fundamental and shareholders statistics of Energean PLC.

Financial and Operational Highlights (for the six months ended 30 June 2021 as of 2 September 2021)

(Source: LSE Website)

• The revenues increased to USD 206 million against USD 2 million in H1FY20, primarily due to the transformational nature of the acquisition of Edison E&P.
• The Company was also successful in reducing the unit cost of production by 44% to $15.4/boe.
• The Company reported a positive EBITDAX of USD 75 million against a loss of negative USD 8.9 million in H1FY20.
• The Company outperformed its previously stated guidance for H1FY21 across all regions.
  

Financial Ratios (H1 FY2021)

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 22 September 2021, at 9:55 AM GMT+1, ENOG’s shares were trading at GBX 816.50, up by around 0.55% against the previous day closing price. Stock 52-week High and Low were GBX 987.90 and GBX 501.70, respectively.

On a daily chart, the MACD line remained above the signal line. Hence, there could be an uptick in the stock price in the near term.

Since the day of listing, ENOG’s stock has delivered a decent positive return of ~88.95%. Also, it has outperformed the FTSE All-Share Oil, Gas & Coal index with a return of about negative 34.57% and the FTSE 250 index with a return of about 19.90%.

Valuation Methodology: EV/Sales (NTM) (Illustrative)

 

Business Outlook

ENOG delivered an excellent performance in H1 FY21, with revenue rising from USD 2 million to USD 206 million. Underlying EBITDA bounced back to profits from the losses in H1FY20. The average working interest production was 44.0 kboed, above the full-year guidance of 38-42 kboed. The Company is on track to deliver the first gas from Karish in mid-FY22 as by 31 July 2021, the project was 91.5% complete. The Company also took FID on two high-return growth projects. A USD 70 million second oil train will enable increased production of approximately 5 million barrels of hydrocarbon liquids per year and a USD 40 million second gas sales riser, enabling gas production at the full 8 Bcm/yr capacity of the FPSO. The management remains committed to reducing the carbon footprint while maintaining a strong product portfolio and balance sheet. The Company improved its growth guidance for FY21 amid revised Karish First Gas Timetable.

Considering the Company’s growth guidance, its increased production volume, its continued investments, the improved profitability, liquidity, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Energean Plc at the current price of GBX 816.50 (as on 22 September 2021 at 9:55 AM GMT+1), with lower-double digit upside potential based on 11.77x EV/NTM Sales (approx.) on FY21E sales (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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