Esken Limited

Esken Limited (LON: ESKN) is FTSE All-Share listed aviation and energy infrastructure entity. Its two core assets include Stobart Energy and London Southend Airport.

Investment Rationale – AVOID at GBX 25.48

• The pace of economic growth can be derailed with rising Covid-19 cases and inflationary concerns.
• In FY21, ESKN reported a 25.1% and 187.9% decline in total revenue and adjusted EBITDA, respectively.
• The prolonged period of reduced activity in the airline business led to the liquidation of Stobart Air and Propius business, which incurred significant losses for the Company.
• From a technical standpoint, 20-day EMA (GBX 27.50) sustains above the current market price, reflecting a bearish trend. Adjacently, the MACD line is trading below the centerline; however, forming a positive crossover with the signal line.
• In the last 1-year, ESKN’s stock price has plunged ~34%, showing a significant underperformance against the positive return of the benchmark, the FTSE All-Share index.

Risk Assessments

• The rising case of Delta plus and Lamba variant can impact passenger travel and global logistics operations.
• ESKN’s finance cost has increased due to higher interests, while it incurred substantial losses in FY21. Therefore, the Company is exposed to liquidity risk.

Recent News

Response to press speculation: On 14 June 2021, Esken affirmed that it is in the final stage of the agreement with Carlyle Global Infrastructure Opportunity Fund for strategic funding of £120 million for the development of London Southend Airport.

Financial Highlights (for the 12 months ended 28 February 2021, as on 30 June 2021)

 (Source: Company Website)

• In FY21, ESKN reported a total loss before tax of £150.3 million (FY20: £139.4 million), which included non-cash items, such as net impairments and the loss of Stobart Air's acquisition.
• Post FY21, the Company placed Stobart Air into liquidation, which resulted in significant cash outflow.
• At the end of FY21, the Company had bank facilities of £120 million, expiring in January 2022.

Share Price Chart

 (Analysis done by Kalkine Group)

Conclusion

The Covid-19 pandemic certainly had a devastating impact on the Company. Consequently, it reported a significant rise in losses. The Group is in discussion with strategic financial partners for funding to accelerate the Covid-19 recovery phase. The lower availability of waste wood from the construction industry has also impacted its Energy division. The challenging Aviation sector might also take some time to recover. Therefore, we recommend a cautious stance over the stock, and it is better to avoid such loss-making entity amid the prevailing uncertainties. The stock made a 52-week High and Low of GBX 40.04 and GBX 17.03, respectively.

Based on the aggravated losses, pandemic induced disruption, and uncertain outlook, we have given an “AVOID” recommendation on Esken Limited at the current market price of GBX 25.48 (as on 30 June 2021, as at 7:15 AM GMT), while we look forward to reviewing how it responds to lockdown easing with progressive vaccine rollout.

UK Oil & Gas PLC

UK Oil & Gas PLC (LON: UKOG) is FTSE AIM All-Share listed Oil & Gas Exploration and Production Company. Its assets are mainly located in the Weald Basin in southern England.

Investment Rationale – AVOID at GBX 0.2194

• The concerns regarding transportation curbs with the resurgence of Covid-19 cases can impact the oil prices and related stock.
• The alternative low carbon energy sources and increased supply from new oil and gas players, can significant the price and markets.
• From a technical standpoint, UKOG’s stock is trading in the oversold territory since its price is hovering around the lower standard deviation of the Bolling Bands, while the momentum oscillator 14-day RSI trades at a 58.69 level.
• In the last 1-year, UKOG’s stock price has plunged ~26.79%, showing a significant underperformance against the positive return of the benchmark, FTSE AIM All-Share index.

Key Risks

• The volatility in oil price environment and macroeconomic instabilities can worsen the Company’s financial conditions.
• As the Delta variant of Covid-19 is gradually becoming dominant, it is raising fears of slower economic recovery.
• The Group trajectory depends upon its ability to raise external funds.

Recent News

Basur-3 Drilling: On 18 June 2021, UKOG announced the commencement of air drilling of Basur-3, following the acceptance of the Oceanmec Karahan ZJ40DZ rig.

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

(Source: Company Website)

• The reduction in oil prices significantly impacted the UKOG’s operations and it reported substantial losses.
• As on 30 September 2020 the Company had borrowings of £3,084,000 and cash and cash equivalents of £1,634,000.
• In June 2020, the Company also paid its convertible loan with YA II PN Ltd and Riverfort Global Opportunities PCC Limited.

Share Price Chart

 (Analysis done by Kalkine Group)

Conclusion 

UKOG is a lossmaking entity that has no control over the future rates of Brent Crude, while the prevailing uncertainties can further impact its cash flows. On 25 May 2021, the Company also completed the purchase of Horse Hill equipment for £1.65 million, the final payment was made through equity issuance. Adjacently, the Company’s latest available financial results are quite old to rely on for fresh investment. Moreover, it is a penny stock with small market capitalization, which is exposed to volatile price movement amid rising pandemic woes. The stock made a 52-week High and Low of GBX 0.48 and GBX 0.10, respectively.

Based on the bearish stock price momentum, worsened losses, resurgence of Covid-19 cases, we have given an “AVOID” recommendation on UK Oil & Gas PLC at the current market price of GBX 0.2194 (as on 30 June 2021, as at 10:00 AM GMT), while we look forward to reviewing how the Company will respond to Turkish geothermal opportunities.  

Eve Sleep PLC

Eve Sleep PLC (LON: EVE) is FTSE AIM All-Share listed sleep wellness brand, operating through a direct-to-consumer channel in the UK.

On 16 July 2021, EVE has scheduled to release its trading update for the six months ended 30 June 2021.

Investment Rationale – AVOID at GBX 4.09

• The business still needs to be in a secure and sustainable long-term footing by reducing losses and cash burn. The heightened level of sales volatility can impact its financial performance.
• The Company operates in the highly competitive mattress and pillow industries, it can fail to maintain or grow its existing market share if it fails to capitalize on e-commerce trends or face supply chain disruptions amid Covid-19 induced restrictions.
• From a technical standpoint, UKOG’s stock price shows a bearish momentum since it is trading below the 50-day EMA. Meanwhile, 14-day RSI (47.29) indicates an indecisive action with neutral strength.
• In the last six months, EVE’s stock price has fallen ~4.65%, showing a significant underperformance against the positive return of the benchmark, FTSE AIM All-Share index.

Key Risks

• Eve Sleep operates in a fragmented and rapidly changing market. Moreover, inflation market conditions can impact consumer spending on sleep wellness products.
• The Company has a history of losses, and it can face liquidity issues with another round of lockdown with rising Covid-19 cases.

Recent News

Director Change: On 31 March 2021, Mike Lloyd was appointed as the Chairman of the Board, with effect from 26 May 2021.

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

 (Source: Company Website)

• During FY20, Revenue increased to £25.2 million, representing a 6% surge against FY19.
• Similarly, the gross profit margin also showed improvement of 418 basis points against FY19.
• A positive marketing contribution was generated by UK&I and France divisions.
• The Group became cash neutral for the first time, while it reduced statutory loss by 83% to £2.0 million in FY20 versus FY19.

Share Price Chart

 (Analysis done by Kalkine Group)

Conclusion 

Eve Sleep’s share price got a boost post unveiling its plans to launch CBD (Cannabidiol) range; however, the stock has shown a downward trend since February 2021 with lower highs and lower lows. The financial results demonstrated an acceleration in revenue generation; however, its history of negative cash flows and losses amid pandemic and inflation-related pressure compelling us to keep a cautious stance over this penny stock. The stock made a 52-week High and Low of GBX 9.50 and GBX 1.20, respectively.

Based on lossmaking position, uncertain outlook, competitive pressure, and subdued consumer spending, we have given an “AVOID” recommendation on Eve Sleep PLC at the current price of GBX 4.09 (as on 30 June 2021, as at 7:45 AM GMT), while we look forward to reviewing its business resilience amid escalating uncertainties.  

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

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