UK Oil & Gas PLC

UK Oil & Gas PLC (LON: UKOG) is an FTSE AIM All-Share listed oil and gas exploration and production entity.

Investment Rationale – Watch at GBX 0.11

• Weak Financial Update: In the half-yearly report (for the six-month period ended 31 March 2021) released on 30 June 2021, UKOG reported worsened gross losses, operating losses, and net losses due to significantly higher cost of sales, and operating expenses.
• Revenue Increase: Although the Company reported a slight revenue increase on the back of the production of Horse Hill field, the operating losses increased from £0.90 million in H1 FY20 to £1.02 million in H1 FY21.
• Acquisition Completion: On 1 February 2022, UKOG completed the planned 2D seismic acquisition and the proposed Basur-3 mechanical sidetrack, which showed progress against the first production from Basur-Resan.
• Subdued Macroeconomic Conditions: The dented risk appetite of investors amid record inflation rate in the UK, Ukraine war crisis, expectations for further interest rates hikes, and uncertain demand outlook.
• Underperformance Against Index: UKOG’s stock price has fallen over 30% in the past six months, reflecting a significant underperformance against the FTSE AIM All-Share index.
• Unfavourable Technical Indicators: From the technical standpoint, the current market price is hovering between the middle and upper Bollinger Band, while the 14-day RSI (~51.67) is not in the oversold zone.  

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Conclusion

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Based on the weak financial results, macroeconomic uncertainties, negative equity returns, and bearish technical indicators, we have given a “WATCH” recommendation on UK Oil & Gas PLC at the closing market price of GBX 0.11 (as of 28 February 2022).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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