Trinity Exploration and Production PLC

Trinity Exploration & Production PLC is an FTSE AIM All-Share index listed independent oil production company. Moreover, the Company is focused on Trinidad & Tobago and operates a portfolio of both onshore and offshore development assets.

Rationale for Valuation – SELL at GBX 155.00

• Profit Booking: TRIN has yielded over 63% return in the past year, and therefore, investors can liquidate their position with decent gains as per their risk-return profile.
• Covid-19 Pandemic: The reintroduced restrictions due to the Omicron variant of the coronavirus can delay the drilling programmes and impact current producing assets.
• Technical Indicator: From a technical standpoint, 14-day RSI (~70.17) indicates an overbought scenario, while the stock price has breached the upper Bollinger Band.
• Overvalued Multiples: On a forward 12-month basis – EV/EBITDA, Price/Earnings, Price/Cash Flow and Price/Book are quite higher than the median of the Energy sector.

Key Risks

• Macroeconomic Risk: The UK economy witnessed a slowdown in the GDP recorded in October 2021. Moreover, surging inflationary pressure can compel the central bank to increase the interest rates.
• Environmental Compliance: The failure to adopt or apply ethical standards and environmental compliance may affect the reputation of TRIN.
• Operational Risk: The growth trajectory can be impacted by various factors, such as increasing freight rates and operational risk regarding production stoppages or equipment failures.

Q3 FY21 Operational Highlights (for the three months ended 30 September 2021, as of 14 October 2021)

• Flat Production Levels: Despite a halt in production facilities, TRIN reported production volumes of 3,018 bopd during Q3 FY21, while it remained around 3,047 bopd for Q2 FY21.
• Average Realised Price: The average realised price stood at USD 62.6 per barrel during Q3 FY21.
• Strong Cash Generation: The strong operating cash generation during the period led to a significant increase in the cash balance from USD 19 million as of 30 June 2021 to USD 20.4 million as of 30 September 2021.

One Year Share Price Chart

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

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

Conclusion

Considering the penny nature of the stock, TRIN may undergo sizeable corrections because of the rising interest rates prospect, global inflation, and Omicron variant of the coronavirus. As the stock has breached our previously recommended target price in the short span, investors can book decent gains, as per their risk-return profile. The stock made a 52-week High and Low of GBX 187.50 and GBX 86.15, respectively.

Based on the small market capitalization, decent gains, overvalued multiples, overbought technical stance, uncertain macroeconomic outlook, and unfavourable valuation done using the above method, we have given a “SELL” recommendation on Trinity Exploration and Production PLC at the current market price of GBX 155.00 (as on 13 December 2021 at 08:29 AM GMT).

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

*All forecasted figures and Peer information have been taken from REFINITIV.

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