Anglo Pacific Group Plc

Anglo Pacific Group Plc (LON: APF) is a Mining Company, which primarily focuses on royalties associated with the mining of natural resources.

On 26 May 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Sell at GBX 138.40

• On a trailing 12 months, EV/Sales, EV/EBITDA, Price/Earnings and Price/Cash Flow multiples of APF are currently higher than the corresponding multiples of the Metals & Mining industry, reflecting overstretched valuations.
• In FY20, the net margin and ROE were in the negative zone.
• The Company reported lower financial performance in FY20 and experienced difficulty in the trading environment due to the Covid-19 pandemic.
• In the last one year, the Company delivered a negative return of ~12.42%.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 58.05 level), which means the stock price could decline in the short term.

Key Risks

• The outlook for most commodities, mainly for coal, will be uncertain in the near term.
• The Global Covid-19 pandemic could result in the suspension of operations and increased labour absenteeism, and thus, the operation costs.
• Moreover, there are several associated financial risks such as fluctuation in the foreign exchange & interest rates, availability of adequate working capital and credit defaults.

Financial Highlights (for the year ended 31 December 2020 (FY20), as on 14 April 2021)

(Source: Company Website)

• The Company saw a lower production from Kestrel, with a decrease in 2020 volumes of 11%.
• Moreover, due to the closure of Indian ports (as the outbreak of Covid-19), the coal prices were significantly impacted.
• During 2020, the reduction in royalty revenue to £34 million, with a decrease of 38% in total portfolio contribution.
• The reported profit after tax has swung to a loss of £18.6 million in 2020 from a profit of £29 million in 2019.
• Further, the Board has proposed a final dividend per share of 3.75 pence, bringing the total dividend per share to 9 pence.
• On an operational front, there was a minimal disruption caused by Covid-19 in 2020 across the portfolio.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

In 2021, the Company expects Kestrel volumes to remain at similar levels as shown in 2020. However, it also expects that the Maracás Menchen operator will increase its activity in the year ahead, with the sale of bi-products now underway and increased premium vanadium product sales being targeted. In 2021, the outlook for base and battery metals is looking favourable. Moreover, in the near term, the outlook for most commodities looks favourable.

Meanwhile, it reported a decline in 2020 performance and swung from profit to loss-making company. According to the coal markets, it had a turbulent year driven by the knock-on impact of an over supplied seaborne market and the closure of Indian ports. Although the coal prices have started to recover in early 2021; however, prices for coking coal stay subdued. Overall, the remainder of the year remains cautious as showing wider lockdowns in India and Brazil to curb the Covid-19 pandemic.  Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to the Covid-19 pandemic. The stock made a 52-week low and high of GBX 97.10 and GBX 165.00, respectively.

Based on the poor fundamentals, uncertain outlook, economic downturn, and valuation conducted above, we have given a “Sell” recommendation on Anglo Pacific Group at the current price of GBX 138.40 (as on 30 April 2021 at 9:25 AM GMT), while we will look forward to reinvesting at the right time when the due corrections are being done, and we have more clarity regarding the profitability and guidance.

Genel Energy Plc

Genel Energy Plc (LON: GENL) is a London, United Kingdom-based company, engaged in the business of oil and gas exploration and production in the KRI (Kurdistan Region of Iraq).

On 6 May 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Sell at GBX 162.60

• On a trailing 12 months, EV/EBITDA and Price/Cash Flow multiples of GENL are currently higher than the corresponding multiples of the Oil & Gas industry, reflecting overstretched valuations.
• In FY20, the net margins and ROE were in the negative zone.
• The Company is dependent upon funding through external sources to run its business operations.
• From the technical standpoint, the stock is currently trading below its mid-Bollinger band (50 SMA) at GBX 173.2 and hence could face resistance around these levels.

Key Risks

• The Brent oil prices may plunge, pressured by an increase in the US Dollar index, amid elevated concerns over fresh lockdown in Europe.
• The business of Genel Energy Plc may get affected by increased volatility in the commodity prices and uncertainty in demand.

Recent News

On 13 April 2021, the Company received payments from the Kurdistan Regional Government for oil sales during February 2021.

Financial Highlights (for the year ended 31 December 2020 (FY20), as on 18 March 2021)

(Source: Company Website)

• The Company has shown a decrease in working interest production due to the delay in the investment programme at the Tawke PSC.
• The operating profit has swung to a loss of USD 364.50 million in 2020 from a profit of £132.3 million in 2019.
• On 31 December 2020, the net cash was USD 6 million, with cash of USD 274 million and reported IFRS debt of USD 268 million.
• The Company announced a 2020 dividend per share of 15 US cents.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

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

Conclusion

In 2021, the Company expects production to be slightly above the 2020 data, with the potential for a higher exit rate. It also expects 2021 capital expenditure to be in the range of USD 150-200 million. 2020 was a uniquely challenging year for the Group. Moreover, the business is more exposed to the economic uncertainties arising from the Brexit and Covid-19 pandemic. Overall, the remainder of the year remains cautious as a result of the global Covid-19 pandemic’s impact on the brent oil price. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to the Covid-19 pandemic. The stock made a 52-week low and high of GBX 105.60 and GBX 194.80, respectively.

Based on the poor fundamentals, uncertain outlook, economic downturn, and valuation conducted above, we have given a “Sell” recommendation on Genel Energy at the current price of GBX 162.60 (as on 30 April 2021 at 8:30 AM GMT), while we will look forward to reinvesting at the right time when the due corrections are being done, and we have more clarity regarding the profitability and guidance. 

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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