Merian Chrysalis Investment Company Limited

Merian Chrysalis Investment Company Limited (LON: MERI) is a closed-ended investment group.  It was established to provide investors with access to some of Europe's most advanced, fastest growing, and disruptive private businesses.  

Update Relating to COVID-19 (as on 26^th March 2020)
The company provide an update in respect of market uncertainty relating to Coronavirus (COVID-19). Despite this difficult backdrop, the group is well-positioned at this current time. It has a strong balance sheet, with a cash of around £65 million as well as no leverage in place. As previously disclosed, the company has an investment in Embark Group, which will complete later in the second quarter of 2020. The business operates less than 5 per cent of the portfolio across business sectors, which is directly exposed to COVID-19. The top six positions in the portfolio accounting for ca. 87% of invested NAV, in aggregate continue to trade robustly versus Merian Global Investors anticipations. Several of the Company's holdings contain downside protection. In January 2020, the group has raised $ 150 million and leaving a cash position of $300 million in Graphcore.

Financial Highlights: 3rd September 2018 (date of incorporation) to 30th September 2019
On 30^th September 2019, the NAV per share increased by 14.6% to 113.3 penceas compared with the first day of dealing (6 November 2018: 98.85 pence). On 30 September 2019, the company has invested capital of £158 million. Total net assets stood at £382 million in the current period, an increase of 282% from £100 million.

Share Price Performance

Daily Chart as of April9^th, 2020, after the market closed (Source: Thomson Reuters)

On 9^th April 2020, Merian Chrysalis Investment Company Limited shares closed at GBX 86, down by 2.27% as compared with the prior day closing price. Stock's 52 weeks High is GBX 143, and 52 weeks Low is GBX 67.

Conclusion
On 17 February 2020, Jupiter Fund Management plc (JUM) released its proposed acquisition of Merian Global Investors. The acquisition is expected to complete in the H2 FY20.

The company has delivered a decent performance in the current quarter. For the rest of FY20, the group expect several sectors to continue their sideways trajectory. Weakening macroeconomic environment has resulted from the combination of ongoing political uncertainty and low economic growth around the world, which might result in a decline in the valuations. Being a global hub, the long-term prospects of London market still seem to be bright, but the current political impasse has reduced transaction activity in recent months, especially in the investment market, as investors are reluctant to make investment decisions whilst outcomes remain uncertain. The COVID-19 situation is rapidly evolving, and the group is closely monitoring the impact on the centres.

Based on the factors as highlighted above, we have given an “Avoid” recommendation at the closing price of GBX 86 (as on 9th April 2020).

EnQuest PLC

EnQuest Plc (LON: ENQ) is a London-headquartered independent production and development group. It is focused on profitably improving hydrocarbon recovery and prolonging the useful lives of assets.

Financial Highlights (for the year ended 31^st December 2019, $ million)

(Source: Results, Company Website)

EnQuest’s average production rose by 23.7% to 68,606 Boepd,representing the production was towards the top end of the previous guidance range. In FY19, the revenue increased by 42.5% to $1,711.8 million from $1,201 million in FY18, driven by the increase in production and the favourable impact of the ENQ’s commodity hedge programme. EBITDA for FY2019 stood at $1,006.50 million, an increase of 40.5% as compared with the previous year, due to an increase in production and revenue. As a result of the company, cash generated by operations stood at $994.6 million, an increase 26.1% from 2018, with $368.5 million of free cash flow. For the financial year 2019, the cash capital expenditure stood at $237.5 million (FY18: $220.2 million). The available bank facilities and cash stood at $288.6 million on December 31, 2019, with a reduce in net debt of $1,413 million (2018: $1,774.5 million). On 31^st December 2019, the net debt to EBITDA was stated at 1.4x. On the end of February 2020, the cash and available facilities stood at $268.2 million, outstanding credit facility was stated at $425.0 million, and net debt was $1,368.1 million.

Share Price Performance

Daily Chart as of April9^th, 2020, after the market closed (Source: Thomson Reuters)

On 9^th April 2020, EnQuest PLC shares closed at GBX 13.24, up by 18.43% as compared with the prior day closing price. Stock's 52 weeks High is GBX 30.00, and 52 weeks Low is GBX 7.07.

Risk Assessment
The company’s policy is to manage the effects of commodity prices to protect against volatility and allow the availability of cash flow for repayment of debt and investment in capital programmes. A material decline in oil and gas prices adversely affects the company’s operations and financial condition. Unanticipated changes in the regulatory or fiscal environment can affect the company’s ability to deliver its business plan and potentially impact the revenue and future developments. The ongoing outbreak of Coronavirus and a crude price war between Saudi and Russia could impact the company’s performance in the near term.

Conclusion
Full-year production guidance stays between 57,000 Boepd and 63,000 Boepd. The expected free cash flow breakeven for 2020 reduced to $33 per Boe.The three largest assets comprise Magnus, PM8/Seligi, and Kraken, continue to generate substantial operating cash flows. As per the low oil price environment, ENQ is taking major action to decline capital expenditure and operating in 2020 and beyond. While these actions represent the decrease in the production anticipations, enhanced in free cash flow and with no senior credit facility amortisations due in 2020 and long-dated bond maturities. The company was exposed to the impact of changes in both Brent crude oil prices and gas prices on its revenue and profits. The company remained focus to reduce its net debt. The company is actively looking for acquisitions to expand its operations and production capabilities. The company operates in multiple geographies. Its profits can be impacted negatively due to foreign exchange rate fluctuations. Recently, the outbreak of Coronavirus could impact the company’s performance in the near term.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 13.24 (as on 9th April 2020), with support from improvement in oil & gas markets needs to be evaluated at a later stage.

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