Harbour Energy PLC

Harbour Energy PLC (LON: HBR) came into existence post an all-share merger between Premier Oil and Chrysaor. The new entity is regarded as the biggest oil and gas producer and replaced the LSE listing of Premier Oil PLC from 1 April 2021.

Upcoming Event: On 9 December 2021, HBR will provide an update regarding capital allocation plans and the Company's strategy.

Investment Rationale – SELL at GBX 401.00

• Profit Booking: HBR’s stock price has breached our previously recommended prices and giving opportunity to book profit.
• Oil Price Volatility: Both Brent and WTI benchmark are trading below US$80 per barrel level, while the emergency oil release plan unveiled by the US today amid coronavirus-related lockdowns in Europe can hammer the prices further.
• Technical Indicator: From a technical standpoint, Bollinger Bands suggests that the price has breached the upper Bollinger Band, while the 14-day RSI (~64.76) is also in the overbought position.
• Overvalued Multiples: On a forward 12-month basis, key valuation metrics - EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow multiples of the HBR are currently higher as compared to the median of the Oil & Gas sector.

Risk Assessments

• Oil Price Volatility: The recent surge in US oil inventories can impact the oil prices in the short-term. The decline in oil prices can impact the cash generation and profitability of the Company.
• Operation Difficulties: The performance is also dependent on the production stoppages, equipment failures and supply chain amid the Covid-19 crisis.

Recent News

Senior Notes Offering: On 8 October 2021, HBR priced its senior notes offering of $500 million of 5.50% senior notes due October 2026. The gross proceeds will be used to cancel its Shell Junior Facility.

Half-year Results (for the six months to 30 June 2021, as on 23 September 2021)

(Source: Company Website)

• Revenue Growth: During H1 FY21, HBR generated revenues of US$1,377 million (H1 FY0: US$1,230 million) from hydrocarbon production and tariff income.
• Sales: It sold crude oil of US$897 million (H1 FY20: US$723 million) and delivered and gas revenue of US$395 million (H1 FY20: US$413 million).
• Liquidity: At the end of H1 FY21, the Company held available liquidity in excess of $1 billion with leverage ((net debt/proforma EBITDAX) of 1.2x.
• Reiterated Guidance: The production guidance has been reiterated around 170-180 kboepd (kilo barrels of equivalent per day) for FY21, while the estimated total operating expenditure remained unchanged at US$15-16 per boe.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

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

Conclusion

The risk appetite of investors can remain dented with resurgence in Covid-19 cases in Europe, decades high inflationary conditions globally, fluctuating US Dollar, soaring energy prices, among others. As the stock has given an exceptional return in less than a month, it is prudent to exit the prevailing market uncertainties, and book profit. The stock made a 52-week high and low of GBX 670.00 and GBX 284.00, respectively.

Based on the absence of financial guidance, exception share price returns, macroeconomic uncertainties, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Harbour Energy PLC at the closing market price of GBX 401.00 (as on 22 November 2021), while we look forward to reinvesting when the short-term economic turbulence subsides.

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

*Dividend Yield may vary as per the stock price movement.

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

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