Genel Energy PLC

Genel Energy PLC (LON: GENL) is a low-cost and low-carbon oil producer with licences in the Kurdistan Region of Iraq.

GENL will pay an interim dividend of 6.00 US cents per share on 10 December 2021, while the ex-dividend date will be 11 November 2021

Investment Rationale for Valuation – SELL at GBX 153.38

• The Company witnessed an adverse turnaround from delivering net cash for H1 FY20 to reporting net debt for H1 FY21.
• GENL recently raised a dispute with the Kurdistan Regional Government over the proposed termination of its oil and gas production contracts.
• The recent surge in Brent crude oil price due to the tightened supply caused a significant growth in the stock price, providing a good opportunity to book profit at the current levels.
• From a technical standpoint, GENL is hovering around the upper Bollinger band, indicating a correction in the stock price.
• Moreover, the 14-days RSI of ~74.92 is approaching overbought territory, indicating a correction in the stock price.

Key Risks

• Any rise in interest rates could make it difficult for the GENL to raise debt funding for exploration activities.
• The supply chain constraints could hamper the growth potential of the Company.
• There are financial risks associated with foreign exchange rates and interest rates movements.

Recent Developments

On 6 September 2021, GENL had received USD 33.7 million of payments from the Kurdistan Regional Government ('KRG') with regards to oil sales made during June 2021. 

H1 FY21 Financial Highlights (for the six months period ended 30 June 2021, as on 03 August 2021)

 (Source: Company result)

• The Company witnessed a marginal increase in net production from 32,100 bopd for H1 FY20 to 32,760 bopd for H1 FY21.
• Meanwhile, GENL had reported a net debt of USD 2.20 million as of 30 June 2021.
• Driven by a surge in Brent oil price during H1 FY21, the revenue rose to USD 151.50 million during the period.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

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

Conclusion

For FY21, Genel expects production to be slightly ahead of the FY20 levels. Moreover, the high-impact appraisal results from the Sarta-5 and QD-2 are expected to come around the end of Q3 FY21, which shall improve productivity.  As the Brent crude oil price recently touched a multi-year high after OPEC+ stuck to the existing production output. Thus, it would be prudent to book profit at the current levels on this low-cost oil producer. The stock made a 52-week low and high of GBX 109.20 and GBX 194.80, respectively.

Based on the dispute with the Kurdistan Regional Government, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Genel Energy PLC at the current market price of GBX 153.38 (as on 06 October 2021 at 08:31 AM GMT+1), while we will suggest reinvesting after analysing more corporate announcements.

*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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