Trinity Exploration & Production PLC (LON: TRIN)

Trinity Exploration & Production PLC is an FTSE AIM All-Share index listed independent oil production company. Moreover, the Company is focused on Trinidad & Tobago and operates a portfolio of both onshore and offshore development assets.

Growth Prospects

• Acquisition Benefits: TRIN had acquired PS-4 Block Lease Operatorship Sub-Licence, onshore Trinidad, effective from 01 December 2021 for a cash consideration of USD 3.50 million. Moreover, the acquisition would be funded from existing cash resources and expected to be immediately accretive to operating and free cash flow.
• Recent Approval: TRIN had received approval for the Field Development Plan ("FDP") regarding the Galeota Asset Development ("GAD") Project from the Ministry of Energy and Energy Industries ("MEEI"). Moreover, the FDP development concept deals with the installation of a low cost eight well conductors supported platform.
• Government Support: The Government of Trinidad and Tobago's had put special emphasis on the investment and increasing incentives for the energy sector in the recently announced Budget Statement.

Key Risks

• Covid-19 Pandemic: The new variant of the Covid-19 pandemic, Omicron, had caused a significant decline in the UK Equities.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.
• Rise in Interest Rates: New Zealand came up with a second interest rate hike in the last two months. Moreover, rising inflation worldwide had put pressure on several Central Banks as they struggled to curb it.
• Environmental Compliance: The failure to adopt or apply ethical standards and environmental compliance may affect the reputation of TRIN.
• Operational Risk: The growth trajectory can be impacted by various factors, such as increasing freight rates and operational risk regarding production stoppages or equipment failures.
  

Now, we will analyze the Key Fundamental Statistics & Shareholding Pattern of Trinity Exploration & Production PLC.

Segal (David Michael) is the most significant shareholder as it holds nearly 4.05 million shares as of 30 September 2021.          

Q3 FY21 Operational Highlights (for the three months ended 30 September 2021, as of 14 October 2021)

• Flat Production Levels: Despite a halt in production facilities, TRIN reported production volumes of 3,018 bopd during Q3 FY21, while it remained around 3,047 bopd for Q2 FY21.
• Average Realised Price: The average realised price stood at USD 62.6 per barrel during Q3 FY21.
• Strong Cash Generation: The strong operating cash generation during the period led to a significant increase in the cash balance from USD 19 million as of 30 June 2021 to USD 20.4 million as of 30 September 2021.

H1 FY21 Financial & Operational Highlights (for the six months ended 30 June 2021, as of 15 September 2021)

(Source: Company result)

• Significant Jump in Total Revenue: TRIN’s total revenue surged by around 43% to USD 30.7 million during the period.
• Surge in Oil Price: The Company had shown around 54% growth in the average realised oil price during H1 FY21.
• Decent Cash Balance: TRIN had a decent cash balance of £19.0 million as of 30 June 2021.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: REFINITIV; Analysis done by Kalkine Group)

On 01 December 2021, at 08:13 AM GMT, TRIN’s shares were trading at GBX 118.20, down by around 1.50% from the previous day closing price. Stock 52-week High and Low were GBX 187.50 and GBX 86.15, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, reflecting an upside momentum in the stock price. Moreover, the 14-days RSI of ~31.70 is inching towards oversold territory.

Over the last one year, TRIN’s stock price had delivered a positive return of around 33.67%, while the FTSE AIM All-Share index (benchmark index) had produced a return of about 11.52%, and FTSE All-Share Oil, Gas & Coal (benchmark sector) had generated a return of approximately 23.41%. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had delivered decent operational updates for the third quarter of 2021. With the acquisition of PS-4, TRIN expected to increase production from 65 bopd currently to over 200 bopd by the end of 2022. Meanwhile, TRIN updated regarding the Government of Trinidad and Tobago's continued focus on further stimulating investment and increasing incentives for the energy sector.  Considering the penny nature of the stock, TRIN may undergo sizeable corrections because of the rising interest rates prospect, global inflation, and Omicron variant of the coronavirus. Thus, it may depend on the risk appetite of the investors to take a reasonable position in this company having several operational growth catalysts.

Considering the recent acquisitions, government support, robust revenue jump during H1 FY21, decent production levels, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Trinity Exploration & Production PLC at the current price of GBX 118.20 (as on 01 December 2021 at 08:13 AM GMT), with lower-double digit upside potential based on 47.63x Price/NTM Earnings (approx.) on FY21E earnings per share (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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