Hurricane Energy Plc

Hurricane Energy Plc (LON: HUR) is a United Kingdom-based oil production and exploration Company, which mainly focused on naturally fractured basement reservoirs.

Investment Highlights - Hurricane Energy Plc – Avoid at GBX 2.50

• The Company’s financial performance is significantly impacted by the volatility in oil prices, which resulted in higher impairment charges and lowered profitability.
• As per valuation metrics, EV/EBITDA and Price/Book multiples of the Hurricane Energy Plc are currently higher as compared to the corresponding multiples of the Oil & Gas industry, reflecting overstretched valuations.
• In the last one year, the Company delivered a negative return of 92.27%, and delivered significantly lower returns compared to the benchmark Index (FTSE-AIM Index).
• From the technical standpoint, shares were trading below the short-term support level of 20-day simple moving average prices of GBX 4.14, which reflects a downtrend in the stock and can decline further.

Key Risks

• The decline in oil prices can impact the cash generation and profitability of the Company.
• The Coronavirus outbreak could hamper the supply chain and impact the business of the Company.
• Global political uncertainty regarding trade policy also poses a risk for the Company.

Recent News

On 18 December 2020, Hurricane Energy announced the selection of Dentons UK and Middle East LLP and Evercore Partners International LLP as legal and financial advisors, respectively.

Operational and Corporate Update (released on 18 December 2020)

• The production from Lancaster field continued from well 205/21a-6 alone since 8 October 2020.
• In November, the Company limit production to around 12,000 bopd for management purposes and reservoir evaluation.
• The production since September 2020 averaged 12,500 bopd.
• The net free cash as on 30 November 2020 stood at $87 million.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company’s Lancaster field at current oil prices and production levels is generating positive cash flow. HUR aims to maintain production around12,000 bopd in the near-term. The Company expects production between September and December to be within the set guidance range of 12,000 - 14,000 bopd. In September, the company reduced estimates of Lancaster reserves along with a reduction in oil prices, have a negative impact on cash generation potential in future. The stock made a 52-week low and high of GBX 2.19 and GBX 34.21, respectively.

Based on the headwinds faced by the Group, we have given an "Avoid" recommendation for Hurricane Energy Plc at the current price of GBX 2.50 (as on 21 December 2020, before the market close at 8:00 AM GMT), while we watch for the opening of 205/21a-7z well to assist in the Lancaster reservoir refinement.

Vela Technologies Plc

Vela Technologies Plc (LON: VELA) is the UK based AIM-listed Company which invests in an early-stage technology company and seeks valuation anomalies in publicly listed small-cap companies.

Investment Highlights - Vela Technologies Plc – Avoid at GBX 0.069

• Despite the improvement in financial performance in H1 FY2020, the Company’s operating expenses are increasing, which may impact financial performance in the future period.
• As per valuation metrics, EV/Sales and Price/Cash Flow multiples of the Vela Technologies Plc are currently higher as compared to the corresponding multiples of the Investment Banking & Investment Services industry, reflecting overstretched valuations.
• In the last one year, the Company delivered a negative return 24.77%, and delivered significantly lower returns compared to the benchmark Index (FTSE-AIM Index).
• From the technical standpoint, shares were trading below the short-term support level of 20-day simple moving average prices of GBX 0.074, which reflects a downtrend in the stock and can decline further.

Key Risks

• VELA could fail to implement the strategy in evolving market conditions, which may result in lost market opportunities.
• Any failure to generate substantial liquidity can affect the business prospects of the Company.

Recent News

On 4 December 2020, Vela Technologies announced the signing of a subscription agreement with Cornerstone FS plc. As per the agreement, the Company will invest £200,000 as a part of a private funding round by Cornerstone.

Financial Highlights – H1 FY2021 (30 September 2020) (released on 20 October 2020)

(Source: Interim Report, Company Website)

• In the first half of the financial year 2020, the Company remained in the development stage and did not generate any revenue.
• The Company managed to reduce the loss for the period, driven by positive fair value movements on investments.
• The cash balance as on 30 September 2020 improved to £1,628 thousand and the balance sheet remained well-positioned.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown an improvement in financial performance in the first half of the financial year 2020. The Company is in the development stage and hence rely on grants and cash balances to carry on all the business activities. The operations are financed by the sale of equity securities by private placements. The Bottom-line performance has improved, while profitability remained in the negative zone. The Company has decent liquidity and is debt-free and well capitalised with a portfolio of 6 investment. The Board is considering multiple investment opportunities in accordance with investing policy. The stock made a 52-week low and high of GBX 0.03 and GBX 0.188, respectively.

Based on the headwinds faced by the Company, we have given an “Avoid” recommendation on Vela Technologies Plc at the current price of GBX 0.069 (as on 21 December 2020, before the market close at 8:15 AM GMT), and we will watch for results of new investments.

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