Craneware Plc

Craneware Plc (LON: CRW) is listed on the FTSE AIM All-Share index. It focuses on the licensing and development of computer software for the healthcare industry.

On 21 September 2021, CRW would announce its FY2021 results.

The last dividend of GBX 12.00 per share was paid on 15 April 2021 (interim dividend).

Investment Rationale for Valuation – Speculative Buy at GBX 2,210.00

• The management continues to see significant opportunities in its sales pipeline. It could help in the significant growth of the Company.
• CRW has acquired Sentry,a leader in pharmacy procurement, compliance and utilisation management. Hence, it is expected to scale up CRW’s operations.
• On the profitability front, CRW has a higher net margin than the industry median of 19.5% since FY2019.
• On the leverage front, CRW has a lower debt/equity ratio than the industry median of 0.05x since FY2019.

Key Risks

• If the acquisition of Sentry could not provide the desired synergy, then it could affect the margins of the Company.
• Any disruptive technology could put stress on CRW’s margins.
• The payment of dividends could put pressure on CRW’s liquidity.
  

FY2021 Trading Update (released on 13 July 2021)

• Driven by continued positive momentum, new sales are expected to rise by ~40% YoY in FY2021.
• It is expected to result in revenue rising more than 5% YoY and adjusted EBITDA surging more than 6% YoY, respectively.
• CRW invests significantly for the expansion of its cloud-based Financial and Operational performance platform, Trisus.
• CRW has a cash conversion rate of 90%, similar to the FY2020 level.

One Year Share Price Chart

(Source: Refinitiv, Analysis done by Kalkine Group)

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

Conclusion

The Company is expected to achieve a resilient result than in FY2021. The management continues to invest in the expansion of the Company’s cloud-based Financial and Operational performance platform, Trisus. The acquisition of Sentry could enhance the pharmacy offering of CRW. The management is confident that the Company would deliver double-digit organic growth in the future. The stock made a 52-week low and high of GBX 1,335.00 and GBX 2,830.00, respectively. 

Based on the decent performance in FY2021, the acquisition of Sentry, the significant sales pipeline, the Company’s better profitability and leverage position than the industry, and support from valuation as done using the above method, we have given a “Speculative Buy” recommendation on Craneware Plc at the current market price of GBX 2,210.00 (as of 30 July 2021 at 10:40 AM GMT), with a lower double-digit upside potential based on 52.99x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Cairn Energy Plc

Cairn Energy Plc (LON: CNE) is listed on the FTSE 250 index. It is engaged in the exploration and production of Oil and Gas.

On 7 September 2021, CNE would announce its H1 FY2021 results.

The last dividend of GBX 32.00 per share was paid on 25 January 2021 (Special Consolidation).

Investment Rationale for Valuation – Speculative Buy at GBX 127.90

• Recently CNE achieved a major breakthrough in a French court in its quest to recover USD 1.72 billion from the Government of India. The French court directed to freeze certain Indian assets in Paris after CNE made a petition. The assets have a value of more than EURO 20 million.
• The Company received approval from the Financial Conduct Authority for the proposed acquisition of Shell’s Western Desert assets.
• On the profitability front, CNE had a higher net margin than the industry median of 6.3% in H2 FY2020.
• On the liquidity front, CNE has a higher current ratio than the industry median of 0.93x since FY2018.
• On the leverage front, CNE has a lower debt/equity ratio than the industry median of 0.29x since FY2018.
• On the technical front, the 14-day RSI at about 26.98 is sustaining at the oversold zone. Hence, there could be an uptick in the stock price in the near term.

Key Risks

• Any correction in oil price due to the strengthening of the US dollar could affect CNE’s margins.
• Payment of dividends could put stress on CNE’s liquidity.
• Adverse weather conditions could disrupt CNE’s operations, impacting its financials.
  

Financial Highlights (for the year ended 31 December 2020 (FY2020), as of 9 March 2021)

(Source: LSE Website)

• Driven by an average oil price of USD 42.56/bbl, CNE achieved Oil & Gas revenue of USD 324 million in FY2020.
• However, Covid-19 impact on operations led to lower revenue YoY, with total revenue declining by ~26%.
• It resulted in a loss of USD 117.5 million from continuing operations in FY2020 from a profit of USD 119.2 million from continuing operations in FY2019.
• CNE plans to sell its interests in the UK Catcher and Kraken fields as their quality has deteriorated.
• In FY2020, CNE had no drawn debt with a cash position of USD 570 million.

One Year Share Price Chart

(Source: Refinitiv, Analysis done by Kalkine Group)

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

Conclusion

The Company achieved a major breakthrough in its quest to recover USD 1.72 billion from the Government of India. It could further strengthen its liquidity by the sale of UK Catcher and Kraken fields. The management forecasted exploration and appraisal capital expenditure of USD 90 million in FY2021. Hence, CNE is well-positioned to generate a substantial return for its shareholders. The stock made a 52-week low and high of GBX 119.05 and GBX 239.70, respectively. 

Based on the decent growth prospects, major breakthrough to recover liquidity from the Indian government, and support from valuation as done using the above method, we have given a “Speculative Buy” recommendation on Cairn Energy Plc at the current market price of GBX 127.90 (as of 30 July 2021 at 2:20 PM GMT), with a lower double-digit upside potential based on 7.62x Price/NTM Cash Flow (approx.) on FY21E cash flow per share (approx.).

Hummingbird Resources Plc

Hummingbird Resources Plc (LON: HUM) is listed on the FTSE AIM All-Share index. It is a multi-asset, gold production, development and exploration company.

Investment Rationale for Valuation – Speculative Buy at GBX 19.45

• The gold price has recently surged after US Federal Reserve hinted at economic recovery.
• The Company recently found additional gold deposits in its Sanioumale East deposit at the Yanfolila gold mine.
• HUM increased its net cash significantly to USD 12.4 million in Q2 FY2021 from USD 4.9 million in Q1 FY2021
• On the leverage front, HUM has a lower debt/equity ratio than the industry median of 0.48x since H2 FY2019.

Key Risks

• Extreme weather conditions could cause several operational challenges, with various exploration risks. These may affect drilling activities.
• The gold market is cyclical and sensitive to numerous factors, which are beyond the Company’s control.
• The strengthening of the US dollar could cause the gold price to decline. It could hamper the margins of the Company.
  

Q2 FY2021 Operational and Trading Update (released on 20 July 2021)

(Source: LSE Website)

• In Q2 FY2021, HUM achieved steady improvements in gold ounces poured. It had 24,494 ounces of gold as compared to 22,781 ounces in Q1 FY2021.
• Also, the Company has initiated cost reduction and productivity improvement initiatives at the Yanfolila mine.
• Driven by higher revenue and cost savings, HUM increased its net cash significantly to USD 12.4 million in Q2 FY2021 from USD 4.9 million in Q1 FY2021.
• The Company had mining licenses awarded for its Kouroussa mine in May 2021.

One Year Share Price Chart

(Source: Refinitiv, Analysis done by Kalkine Group)

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

Conclusion

For FY2021, the management maintained the gold-production guidance of 100,000 to 110.000 oz. Its cost and productivity improvement initiatives, together with a potential rise in the gold price, is expected to yield growth prospects in H2 FY2021. Mining licences awarded in May 2021 and the discovery of additional gold deposits at Yanfolila gold mine could contribute to this growth. The stock made a 52-week low and high of GBX 18.60 and GBX 42.74, respectively. 

Based on the decent performance so far in FY2021, the discovery of additional gold deposits, the Company’s better leverage position than the industry, and support from valuation as done using the above method, we have given a “Speculative Buy” recommendation on Hummingbird Resources Plc at the current market price of GBX 19.45 (as of 30 July 2021 at 2:15 PM GMT), with a lower double-digit upside potential based on 8.769x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

*All forecasted figures and Peer information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from Refinitiv.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.