Gama Aviation Plc

Gama Aviation Plc (LON: GMAA) is an industrial transportation company, which provides services related to maintenance, charter, design and fixed base operations, logistics, special missions and management to its customers from the aviation sector.

On 29 September 2020, the Company will hold the Annual General Meeting.

Rationale for Valuation

• In the last nine months and one year, the Company delivered a negative return of 37.01% and 46.31%, respectively, and delivered significantly lower returns compared to the benchmark Index (FTSE AIM All-Share Index).
• GMAA’s Debt/Equity in FY19 was 1.64x against the industry median of 1.40x, reflecting that the Company has more debt obligations with relatively highly leveraged capital structure.
• Price/Earnings and Price/Cash Flow multiples of the Company is quite overvalued as compared to the corresponding multiples of the Passenger Transportation Services industry.
• From the technical standpoint, 14-day RSI stood at ~85, which means the stock price could decline in the short term.

Key Risks

• It is exposed to foreign currency (primarily Pounds Sterling, US Dollars and Euro) fluctuations and interest rate changes.
• Increasing competition can impact the market-leading position of the Company and can also put the pressure over margins.
• Gama Aviation would be impacted due to the uncertainty created by Brexit, as it would result in customer loss and negatively impact the financial performance of the company.

Recent News

On 8 September 2020, the Company stated that Gama Aviation and Atkins had been appointed by the MOD (Ministry of Defence) as the organisations responsible for supporting the airworthiness of the Viking T1 – the aircraft used by RAF (Royal Air Force) Air Cadets for basic glider training.

Financial Highlights (for the year ended 31 December 2019, as on 31 July 2020)

(Source: Company Website)

• The market environment throughout 2019 was challenging and highly competitive across all the operating divisions and regions.
• The Company has given a solid organic revenue growth in FY19, but profitability margins were adversely affected by continuing challenges within the finance function and by a highly competitive market environment.
• On a pre-IFRS 16 basis, the net debt increased to US$37.8 million from US$2.5 million at 31 December 2018.
• Given the desirability of conserving cash during the ongoing COVID-19 pandemic, the Board did not recommend a dividend for 2019.
• The Company’s liquidity position remains robust with approximately US$17 million of cash and around US$29 million of the US$50 million revolving credit facilities.

One Year Share Price Chart

Daily Chart as of 14 September 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Conclusion

The Company owns a 20% equity stake in China Aircraft Services Limited, which suffered significant losses in 2020 due to COVID-19 related reduced volumes. Gama Aviation’s financial guidance for the year ending 31 December 2020 remains suspended, due to the continuing operational and financial uncertainties resulting from the COVID-19 pandemic. Despite an increase in the revenue, the bottom-line performance declined in FY19. Therefore, it is advisable to book profit now and reinvest the amount of principal and gains at the right time and price. The stock made a 52-week low and high of GBX 31.00 and GBX 76.90, respectively.

Based on the risks associated and uncertain business environment, we have given a “Sell” recommendation for Gama Aviation at the current price of GBX 40.00 (as on 14 September 2020, before the market close at 11:30 AM GMT+1).

Victoria Oil & Gas Plc

Victoria Oil & Gas Plc (LON: VOG) is an FTSE AIM All-Share listed producer and distributor of gas. It is involved in the exploration, production, and distribution in Cameroon.

Rationale for Valuation

• The Company’s profitability margins and Return on equity remained in the negative zone from last three years.
• In the last three months and nine months, the Company delivered a negative return of 20.84% and 55.22%, respectively, and delivered significantly lower returns compared to the benchmark Index (FTSE AIM All-Share Index).
• The Company’s Price/Earnings and Price/Cash Flow multiples are in negative zone as compared to the Oil & Gas industry multiples.
• From the technical standpoint, the 200-day simple moving average price is currently at GBX 4.46, which is higher than the current price, and thus, it reflects a downtrend in the stock.

Key Risks

• The Company’s operational performance is exposed to the global macroeconomic environment and industry conditions such as global demand and supply imbalance, which could affect product volumes and prices across markets.
• Long production delays and outages could have a material impact on production, operating performance, and financial condition.
• The overdependence on key customers like ENEO can cause substantial problems for liquidity and profitability.

Recent News

On 11 September 2020, the Company announced the appointment of Rob Collins as a Chief Financial Officer (CFO), from immediate effect.

Q2 FY20 Operational Update (as on 27 July 2020)

(Source: Company Website)

• In the second quarter of the financial year 2020, the Company’s net revenue increased due to higher sale of condensate to industrial customers.
• It served notice of termination to ENEO and given further opportunities to clear debts.
• VOG is not planning for further drilling based on analysis of well stock and management has reduced estimated 1P (Proved Reserves) for the Logbaba Field.
• The Company has materially increased the estimate of Prospective Resources after derisking and extensive prospect evaluation of the Matanda Licence.

One Year Share Price Chart

Daily Chart as of 14 September 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Conclusion

The Company’s financial performance is likely to be impacted after the termination of ENEO contract. The Cameroon business showed resilient performance and managed to replace the gas sales volumes, which were previously allotted to ENEO. The Company made reserves reduction at Logbaba based on well stock, with years of supply. Overall, the Company is still in the development stage; it is advisable to book profit now and reinvest the amount of principal and gains at the right time and price. The profitability margins have remained stagnant or declined. VOG works in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. The stock made a 52-week low and high of GBX 2.48 and GBX 10.70, respectively.

Based on the risks associated and uncertain business environment, we have given a “Sell” recommendation for Victoria Oil & Gas at the current price of GBX 3.00 (as on 14 September 2020, before the market close at 12.15 PM GMT+1).

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