Cairn Energy PLC

Cairn Energy Plc is a UK based independent oil and gas production and exploration company. The company has conducted activities related to exploration, discovery, development and production of oil and gas in multiple locations worldwide. The company divided its operations into 3 reportable segments being Senegal, International and UK & Norway.

On 10^th September 2019, the company will announce its half-yearly results.

Recent News
On 6^th August 2019, the company had entered into an agreement of farm-out for the sale of interest (10 per cent) under the Nova development offshore at Norway.

On 5h August 2019,the company announced that it had been reported by the NPD (Norwegian Petroleum Directorate) regarding PL842, comprising the Godalen outlook, in which the group had a 40 per cent working interest with Capricorn Norge AS, a subsidiary company of CairnEnergy PLC.

Financial Highlights (FY2018, US$ million)

(Source: Annual Report, Company Website)

In the financial year ending 31st December 2018, the company’s reported revenue increased by $377 million to $410.3 million against $33.3 million in the fiscal year 2017. The increase in the revenue was driven by an increase in the sales of oil and gas in the current financial year. The company’s maximum sales came from the UK & Norway business in the fiscal year 2018. The company’s reported operating loss stood at $182.1 million in FY2018 versus a loss of $105.2 million in the FY2017. The operating loss for the period was driven by an increase in Administrative expenses and Impairment expenses in the current financial year.

The company reported a loss before tax of $1,266 million in the financial year 2018 against a profit before tax of $272.8 million in the fiscal year 2017. The company reported a loss for the year attributable to the shareholders of $1,135.5 million in the financial year 2018 against a profit of $217.8 million in the fiscal year 2017. The company reported a basic loss per share of 195.59 cents in the FY2018 versus earnings per share of 37.72 cents in FY2017. The company reported a diluted loss per share of 195.59 cents in the FY2018 against earnings per share of 36.84 cents in FY2017.

The company’s total capital expenditure of the financial year 2018 stood at $284.2 million. A payment of $32.6 million was made to the government in the FY2018. The company’s production in the FY2018 stood at 17,533 boepd.

Share Price Performance

Daily Chart as at August-12-19, after the market closed (Source: Thomson Reuters)

On 12th August 2019, Cairn Energy PLC shares closed at GBX 160 and increased by 0.31 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 251.60/GBX 138. The company’s stock beta was 1.54, reflecting the higher movement of the stock as compared to the benchmark index.

Valuation Methodology

*Peers: Tullow Oil PLC, Hurricane Energy PLC, SOCO International PLC, Eland Oil & Gas PLC, and Amerisur Resources PLC.

Conclusion
The company was awarded 5 licenses in the Offshore Exploration Licence Round in the UK. The company is not relying on one geographic area as it is expanding its operations to Senegal, Norway and Mexico, which is expected to generate good production volumes for the company. Thecompany had entered into various strategic alliances with the government to expand its operations. The ongoing trade tensions between the US and China will affect the oil prices in the international markets.

The company has shown good top-line performance in the current financial year. There had been a significant increase in the revenue by 1,132.13 per cent due to an increase in the demand for the oil and gas, as it remains the primary source of energy. The increase in the revenue led to a drastic surge in the gross profit growth by 1,531.82 per cent.

The company has 6 independent exploration prospects as a part of a joint venture in the period of 2020-21. The company’s SNE Field and Nova Field are under development and expected to deliver production capacity of 100,000 bopd and 50,000 bopd respectively.

Based on the decent growth prospects and the valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 160 (as on 12th August 2019) with single-digit upside potential based on 4.86x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
  
*All forecasted figures and Peer information have been taken from Thomson Reuters.
*Currency exchange rate taken for 1 USD = 0.828133 GBP.

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