Energean PLC

Energean PLC (LON: ENOG) is a FTSE 250 listed hydrocarbon exploration and production entity, with a focus on natural gas.

Investment Rationale – SELL at GBX 948.50

• Oil Price Volatility: Both Brent and WTI benchmarks are trading around US$80 per barrel level, while the emergency oil release plan unveiled by the US amid coronavirus-related lockdowns in Europe can impact 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 (~64.38) is also in the overbought position.
• Overvalued Multiples: On a forward 12-month basis, key valuation metrics - EV/Sales, EV/EBITDA, Price/Earnings, Price/Book, and Price/Cash Flow multiples of the ENOG are currently higher as compared to the median of the Energy sector.

Risk Assessments

• Oil Price Volatility: The recent surge in US oil inventories can impact 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

Pricing of Senior Secured Notes: On 11 November 2021, Energean announced the pricing of US$450 million aggregate principal amount of senior secured notes due 2027, with a fixed annual interest rate of 6 ½%.

Trading Statement (for the 9-months to 30 September 2021, as on 3 November 2021)

(Source: Company Website)

• Financial Performance: Energean continued to deliver excellent financial and operational results, driver by high commodity prices and solid production.
• Guidance: It is on track to generate annual revenue over US$450 million and EBITDAX in excess of US$190 million.
• Project Developments: Its flagship project, Karish remained on track to deliver first gas in mid-2022.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative) 

Conclusion

Energean is a quite speculative counter that has given us a decent run since our previous coverage; however, the tightness in the energy market, uncertainties around emergency crude releases by major consumer nations, and cautious stance until OPEC+ meeting due next week can dent the overstrained position of ENOG.

Adjacently, the resurgence in Covid-19 cases in Europe and reintroduced restrictions in some of the geographies can batter short-term demand prospects.

As the stock has given a decent in the past six months, it is prudent to exit the prevailing market uncertainties, and book profit. The stock made a 52-week high and low of GBX 987.90 and GBX 599.50, respectively.

Based on the oil price volatilities, uncertain demand outlook, pandemic induced macroeconomic instabilities, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Energean PLC at the current market price of GBX 948.50 (as on 25 November 2021, at 8:05 AM GMT), while we look forward to reinvesting when the short-term economic turbulence subsides.

Premier African Minerals Ltd

Premier African Minerals Ltd (LON: PREM) is a FTSE AIM All-Share listed entity that holds a portfolio of strategic metals and agri-mineral projects located across Africa.

Investment Rationale – SELL at GBX 0.2163

• Profit Booking: PREM’s stock price has given a decent return from the recent coverage on the back of progressive Zulu project update, while it has yielded a positive return of around 425% in the past year.
• Weak Fundamentals: PREM doesn’t generate any revenue yet, and thus, all profitability margins are in the negative territory. However, industry median for all key profitability margins is in decent positive range.
• Macroeconomic Uncertainties: British inflation data has topped 10-year high, while the resurgence in Covid-19 cases in Europe could dampen the demand outlook.
• Technical Indicator: From a technical standpoint, Bollinger Bands suggests that the price has breached the upper Bollinger Band, while the 14-day RSI (~63.63) is also in the overbought position.

Key Risks

• Liquidity Risk: PREM is yet to generate any revenue and has a history of operating losses. Its growth prospects are dependent upon external financial resources.
• Supply Chain and Inflation Concerns: There has been facing significant supply chain inflationary pressures, high material, and freight costs.
  

Recent News 

Zulu Drilling Update: On 25 November 2021, PREM updated the progress on at Premier's Zulu Lithium and Tantalum ("Zulu") project in Zimbabwe, and unveiled that

• Significant mineralised intersections in extensions to the existing resource location.
• 24 holes completed (5 November 2021: 19).
• 4,190 meters drilled to date.
• 11 complete bore hole sample sets and 499 samples now submitted for independent assay.
• There is good progress and visible mineralised intersections.
  

Interim Results (for the six months ended 30 June 2021, as on 30 September 2021)

(Source: Company Website) 

• Financial Information: PREM didn’t generate any revenue and had an operating profit of US$3.943 million for H1 FY21, due to the reversal of the impairment of the evaluation and exploration assets of Zulu Lithium.
• RHA Tungsten Private Limited ('RHA'): There is a strong potential for RHA, while the prices for ammonium para tungstate continued to hold above $300 per metric ton unit.
• Cash Position: It held cash and cash equivalents of US$1.36 million at the end of H1 FY21, reflecting a significant higher position than the last year.

One Year Share Price Chart

 (Source: REFINITIV, Analysis done by Kalkine Group)

Conclusion

PREM is trading as a penny stock with small market capitalization, which is exposed to significant market volatilities. 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 decent return, it is prudent to exit the prevailing market uncertainties, and book profit. The stock made a 52-week High and Low of GBX 0.49 and GBX 0.04, respectively.

Based on the macroeconomic uncertainties, weak fundamentals, and recent uptick seen in the stock price, we have given a “SELL” recommendation on Premier African Minerals Ltd at the current market price of around GBX 0.2163 (as on 25 November 2021, at 9:30 AM GMT).  

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

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

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