Pharos Energy PLC 

Pharos Energy PLC (LSE: PHAR) is an independent oil and gas exploration and production company. It has production, development and/or exploration interests in Egypt and Vietnam.

Key Recommendation Rationale – Sell at GBX 21.71

• Year-on-Year Decline in Revenue and Production: Group revenue fell by 19% from USD 168.1 million in 2023 to USD 136.1 million in 2024. This was accompanied by an 11% decline in net production, from 6,508 boepd to 5,801 boepd. The decrease is attributed to lower sales volumes, particularly in Vietnam due to timing issues and refinery maintenance, alongside a general 3% decrease in realised commodity prices. This indicates a contraction in the core operational output and financial intake.
• Deteriorating Cost Efficiency and Rising Operating Expenses: Cash operating costs per barrel increased by 13% from USD 15.70/bbl to USD 17.80/bbl. In Vietnam, the cost per barrel saw a more pronounced rise of 18%. This suggests potential inefficiencies or increased cost pressures within the operations, eroding profit margins. The report cites lower third-party production on a shared FPSO as a contributing factor, highlighting a dependency on external parties that negatively impacts the company's cost structure.
• Material Build-Up of Receivables and Inventory: The company reported a USD 6.0 million inventory build in Vietnam, indicating produced hydrocarbons that have not been sold. Furthermore, while Egyptian receivables decreased, they still stood at USD 29.5 million at year-end. Relying on a state-owned entity (EGPC) for payments introduces a persistent liquidity risk and potential delays in converting production into cash, which could constrain funding for future operations.

Valuation Methodology: Price/ Earnings Approach

Share Price Chart  

One-Year Technical Price Chart (as of September 11, 2025). Source: REFINITIV, Analysis: Kalkine Group 

Conclusion

The available information points to a contraction in the company's financial and operational output over the period. The simultaneous decrease in revenue and production levels suggests a reduction in the fundamental scale of its activities. This is accompanied by an increase in the cost associated with producing each unit, indicating a potential erosion of operational efficiency and profitability. Additionally, the growth in unsold inventory and the ongoing dependency on collecting significant sums from a government-linked partner highlight concerns regarding liquidity management and the stability of future cash flow generation. In summary, these elements depict an operation encountering pressures that may affect its near-term financial standing.

PHAR appears overvalued. For conducting the valuation, the following peers have been considered: Gulf Keystone Petroleum Ltd (LSE: GKP), Afentra PLC (LSE: AET), etc

Given its current trading levels, the recent strategic investments and partnerships, relative valuation, and associated risks, it is prudent to exit the stock at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the Current Market Price of GBX 21.71 as of 11 September 2025, 11:37 AM, GMT+1.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 11 September 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’