Aura Energy Ltd

Aura Energy Ltd (LON: AURA) is FTSE AIM All-Share index listed mineral exploration company founded in 2005 and headquartered in Carlton, Australia. The Company, along with its subsidiaries, is involved in exploration, evaluation and development of uranium, gold, lithium, soda ash projects with primary focus in Sweden and Mauritania.   

Investment Rationale – Avoid at GBX 8.00

• The Company reported a significant decline in revenue in H1 FY2021 YoY due to operating in an environment which is full of challenges and uncertainness. During the second half 2020, business activities were largely on hold.
• The Company’s margin ratios are extremely unfavourable compared to the industry medians. In terms of EBITDA Margin (industry median 36.8%), Pre-Tax Margin (industry median 6.7%) and Net Margin (industry median 5.0%), the Company fares extremely poorly compared to the industry. This makes the Company a poor target for investment

Key Risks

• Uncertain Covid-19 induced macroeconomic conditions could impact the business
• Changes in Government policy, regulatory risk, etc.
• The foreign exchange fluctuations could impact the financial performance

Recent News

Issue of Shares: Aura Energy Ltd, on April 9, 2021, announced that they have issued ordinary shares and options over ordinary shares.

Financial Highlights (for the six months ended 31 December 2020 (H1 FY2021), as on 23 April 2021)

  (Source: LSE Website)

• Business activities were largely on hold during H1 FY 2021 due to Covid-19 induced restrictions to the company projects as well as ongoing legal disputes.
• This led to revenue down ~89.4% YoY from AUD 286,542 in H1 FY2020 to AUD 30,452 in H1 FY2021.
• Due to challenging environment, the Company could not control its expenditures which went up by ~14% YoY
• Muted revenue and inflated expenditure led to Net loss being up by ~38% from AUD 1,231,480 in H1 FY2020 to AUD 1,699,461 in H1 FY2021.
• Continued losses resulted in cash position down ~77.9% YoY.
• The Company does not offer any dividends to its shareholders

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Conclusion

The Company has shown deterioration in financial performance in terms of both top line and bottom line in 1H FY2021. Its cash position also degraded significantly. Covid-19 continues to restrict access to the Company projects. Also, the company is trading near a 52-week high, raising doubts at its upside potential at current prices. The stock made a 52-week low and high of GBX 1.63 and GBX 12.46, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on Aura Energy Ltd at the current price of GBX 8.00 (as on 23 April 2021 at 8:00 AM GMT), while we would monitor the Company’s performance and revisit our stance accordingly.

Baron Oil Plc

Baron Oil Plc (LON: BOIL) is FTSE AIM All-Share index listed oil and gas exploration and production company, founded in 2004 and headquartered in London, the United Kingdom. The Company engages in exploration, production and development of oil and gas reserves primarily in South America.

Investment Rationale – Avoid at GBX 0.1094

• The company did not report any revenues in H1 FY2020.
• The company is a loss making business with no indication of turning profitable in the near or midterm.
• The Company’s return ratios are extremely unfavourable compared to the industry medians. In terms of Pre-tax ROA (industry median 1.1%), Pre-Tax ROE (industry median 1.5%) and ROE (industry median -4.0%), the Company fares very poorly compared to the industry. This makes the Company a poor target for investment.
• The 14-day RSI is in the over-bought territory and hence the stock price could correct in the short term.

Key Risks

• Any changes in regulations and government policies could affect the overall business of the Company.
• The fluctuating oil price could impact the sales
• The foreign exchange fluctuations could impact the financial performance. 

Recent News

Completion of Increased Interest in Chuditch PSC: Baron Oil Plc, on April 23, 2021, announced that they have secured an increased interest in the Chuditch discovery and prospects.

Financial Highlights (for six months ended 30 June 2020 (H1 FY2020), as on 23 April 2021)

  (Source: Company Website)

• The Company did not report any revenue in H1 FY2020.
• Due to challenging environment, the various expenditure of the Company went up. This led to Operating loss up ~73% YoY from GBP 307 thousand in H1 FY2019 to GBP 531 thousand in H1 FY2020. Also, Net loss went up ~129% YoY.
• However, the Company made significant equity offering during 1H FY2020. Due to that, the Company’s cash position was improved by ~197.2% YoY despite the Company incurring significant losses.
• The Company does not offer any dividends to its shareholders

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Conclusion

Reduced activity levels and postponement of projects continue to hamper the Oil & Gas industry. The Company has not yet reported any revenues and its net loss was up ~129% YoY in 1H FY2020. Going forward, the Company wants to make further push in the drilling of the El-Barco-3X well in Peru. However, Covid induced disruptions could be major setbacks. The stock made a 52-week low and high of GBX 0.01 and GBX 0.16, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on Baron Oil Plc at the current price of GBX 0.1094 (as on 23 April 2021 at 8:20 AM GMT), while we would monitor the Company’s performance and revisit our stance accordingly once it starts reporting revenues.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

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