88 Energy Ltd

88 Energy Ltd (LON: 88E) is a FTSE AIM All-Share listed Company involved in oil and gas exploration with assets on the North Slope of Alaska.

Investment Rationale – SPECULATIVE BUY at GBX 1.368

• Merlin-2 Appraisal: On 24 November 2021, 88E affirmed that the Merlin-2 well location has now been selected and is scheduled for drilling in February 2022. 88E is certainly thrilled with the results from the Merlin-1 exploration well. The Merlin-1 well has confirmed an active petroleum system in the Peregrine acreage.
• Fundraising: On 2 September 2021, 88E raised £12.71 million through the issue of 855,856,369 of ordinary shares at a price of 1.49 pence per share. The net proceeds strengthened the Company’s existing cash reserves to finance the drilling and logging of the Merlin-2 appraisal well.
• Favorable Dynamics: Higher energy prices amid rising input costs and delayed storage facilities can support business in the short-term
• Outperformance: 88E’s stock price has soared over 260% in the past year, reflecting a significant outperformance against the benchmark FTSE AIM All-Share index.
• Technical Indicator: From a technical standpoint, 14-day RSI (~34.52) indicates an oversold scenario, while the stock is hovering around the lower Bollinger Band.

Key Risks

• Demand Uncertainty: As the global demand outlook for energy is unstable due to the Omicron variant of the coronavirus, while there are significant operational challenges. The short-term outlook for the Company looks skeptical.
• Inflation Woes: Higher input costs due to supply chain disruption and labor absenteeism can also hamper the profitability margins.

Recent News:  

Quarterly Update: On 15 October 2021, 88E unveiled a quarterly update for the quarter ended 30 September 2021. It reported that

• Merlin-2 appraisal is well planned for Q1 2022.
• Strong financial position with AU$36.1 million in cash and maintained zero debt (as of 30 September 2021).
• The Board and management team was also strengthened.

Interim Results (for the half-year ending 30 June 2021, as on 11 August 2021)

 (Source: Company Website)

• Encouraging Operational Results: 88E completed the drilling of Merlin-1 well at Project Peregrine in March 2021 and received Merlin-1 post well testing program.
• Acquisition: It undertook the acquisition of Umiat oil field and the remaining 50% working interest in Project Peregrine to strengthen the portfolio.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Conclusion 

88E has also undertaken certain acquisitions to generate incremental value for its shareholders and also bolstered the management team. In H1 FY21, 88E recorded a profit of AU$445,446 against the loss reported last year. The Company also held a significant cash position with no debt on the balance sheet. Therefore, it is in a good position to take advantage of upcoming market opportunities. The stock made a 52-week High and Low of GBX 4.70 and GBX 0.38, respectively.

Based on the Merlin-2 Appraisal, excellent operational results, equity issuance, acquisitions, strengthened balance sheet and management, we have given a “SPECULATIVE BUY” recommendation on 88 Energy Ltd at the closing price of GBX 1.368 (as on 2 December 2021).

Bigblu Broadband PLC

Bigblu Broadband PLC (LON: BBB) is a FTSE AIM All-Share listed provider of ultra-fast broadband services.

Rationale for Valuation – HOLD at GBX 78.00

• Strong Trading and Positive Outlook: BBB is trading above the market expectations and well-positioned for growth in FY22. It continued the organic growth and strengthened the balance sheet to deliver further progress.
• Operational Achievements: During FY21, SkyMesh became the Best Satellite NBN Provider for three years in a row. Moreover, Bigblu Norge entered the distribution agreement with Telenor.
• Economic Revival: The encouraging job numbers and subsequently falling unemployment rate coupled with a boost in retail sales across the UK and the US, bolstering hopes for a swift economic recovery.
• Technical Indicator: From a technical standpoint, the current market price was trading higher than the 20-day EMA (GBX 76.60), reflecting a bullish price momentum.
• Undervalued Multiples: On a forward 12-month basis – EV/EBITDA, EV/Sales, and Price/Earnings valuation multiples are undervalued against the median of the Telecommunications Services sector.

Key Risks

• Market Risk: The Group operates in highly competitive markets, and therefore, the increased price competition could impact future profit margins.
• Macroeconomic Challenges: The deterioration of economic conditions and operational disruption caused by the Covid-19 pandemic can hamper the Company’s prospects.

Trading Update (for the 12-month period ended 30 November 2021, as on 2 December 2021)

• Promising Outlook: BBB continued strong trading, and it has significant opportunity to accelerate customer numbers, and financial growth.
• Customer Base: At the end of FY21, BBB reported 60,000 (FY20: 57,200) of customer base, reflecting robust organic growth in customer numbers in Australia.
• Financial Growth: During FY21, revenue and adjusted EBITDA grew around 15% and 10% year-on-year, respectively.

One Year Share Price Chart

 (Source: Refinitiv, Analysis conducted by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

BBB demonstrated a resilience performance during FY21 despite the global challenges created by COVID-19. The partial disposal of Quickline has transformed the balance sheet to yield an excellent return of shareholders. At the end of FY21, it also reported a net cash position of £5.0 million, reflecting the impact of strong improvement across key performance indicators.

Notwithstanding, its nature of being a penny stock involves high risk, and thus, investors are suggested to invest cautiously. However, solid performance in FY21 and recent transformational transactions holds the potential to generate incremental value for its shareholders. The stock made a 52-week high and low of GBX 143.50 and GBX 68.50, respectively.

Based on the net cash position, resilient financial performance, digital transformation and support from the valuation as done using the above method, we have given a “HOLD” recommendation on Bigblu Broadband PLC at the closing market price of GBX 78.00 (as on 2 December 2021).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

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

Disclaimer

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