ContourGlobal Plc - Strong Financial Performance and Business Model Validation Amidst COVID-19 Crisis

ContourGlobal Plc (LON: GLO) is a London, United Kingdom-headquartered power generation Company with operations in 18 countries across three core regions, namely Europe, Latin America, and Sub-Saharan Africa.

Financial Highlights (H1 FY2020)


(Source: Company Website)

On 10 August 2020, the Company provided the half-year results for the six months ended 30 June 2020, with strong financial performance. Led by the acquisition of the Mexican CHP assets (completed in November 2019), the income from operations increased by 11% year-on-year to US$158 million in H1 FY20 (H1 FY19: US$143 million). For the first half of 2020, the Group’s revenue increased by 10% year-on-year to US$680 million (H1 FY19: US$617 million), due to an increase in thermal energy and renewable energy. Adjusted EBITDA for H1 FY20 was down by 2% year-on-year to US$351.2 million (H1 FY19: US$357.2 million). The Group had a strong cash flow generation, with funds from operations of US$ 172 million and ash conversion rate of 49% in H1 FY20. It also witnessed robust liquidity and cash positions, with a liquidity of US$272 million as of 30 June 2020. The Board had approved a quarterly dividend for the three months ended 30 June 2020 of US$4.0591 cents per share (equivalent to US$27.03 million).

Share Price Performance


1-Year Chart as of 12 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

ContourGlobal Plc’s shares were closed at GBX 205 on 12 August 2020, up by 1.49% against the last day closing price. Stock 52 week High and Low were GBX 226.50 and GBX 120.00, respectively.

From the technical standpoint, shares were trading above the short-term support level of 100-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Key Risks

The Company is under the risk that the operational costs would increase, or it would face a loss of business and growth opportunities due to macroeconomic and political conditions. The forecasted revenue from a project may turn out to be lower due to the risk of climate change.Furthermore, the sector is exposed to financial, and operational risks, each of which has the potential to significantly impact the Company’s performance.

Valuation Methodology



Conclusion

The Group continues to expect growth and shareholder returns, with anticipated Adjusted EBITDA in the range of US$710-US$745 million for 2020. All 107 of the power generating facilities have been operational, and the Group continue to experience no notable adverse impacts from the COVID-19. Moreover, the stability of the cash flow ensures that the Company can deliver the long-term commitment to shareholders, including the recent share buyback program and a targeted annual 10% increase in the dividend. GLO has a resilient business model and visible pipeline of future growth, with ContourGlobal emphasis on clean technologies and no future investment in coal.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on ContourGlobal at the closing market price of GBX 205.00 (as on 12 August 2020) and will recommend fresh buying at the right time.
 
Diversified Gas & Oil Plc – Operating with Strong Liquidity Position

Diversified Gas & Oil Plc (LON: DGOC) is an oil & gas producer, which owns and operates natural gas and oil production assets across the Appalachian Basin. The Company operates through a single reportable segment that produces and transports crude oil, natural gas, and natural gas liquids in the Appalachian Basin.

Financial Highlights (H1 FY2020)

The Group provided an interim result for the six months ended 30 June 2020, with the stable production, healthy cash generation, and prudent growth in a global pandemic and commodity price volatility. Despite the challenging environment, the Group recorded an increase in net production to 17.3 million barrels of oil equivalent (MBoe) in the first half of 2020, up from 13.7 MBoe a year prior. Average production per day increased by 26% year-on-year to 95,148 barrels of oil equivalents. The adjusted EBITDA increased by 11% year-on-year to US$146.3 million in H1 FY20 (H1 FY19: US$131.3 million). Following the rise in production and EBITDA, the Group announced a 7.0% increase in the dividend for the second quarter of 2020 to 3.75 US cents per share from 3.50 US cents per share a year before.

Share Price Performance


1-Year Chart as of 12 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Diversified Gas & Oil Plc’s shares were closed at GBX 104.60 on 12 August 2020, down by 0.38% against the last day closing price. Stock 52 week High and Low were GBX 117.00 and GBX 52.69, respectively.

From the technical standpoint, shares were trading above the short-term support level of 100-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Key Risks

During the first half of 2020, the COVID-19 pandemic has brought considerable change to the risk landscape. Led by abundant supply and low gas prices, the US gas market continues to operate in a difficult environment. The Company operates in multiple geographies, and profits can be impacted negatively due to foreign exchange rate fluctuations.

Valuation Methodology



Conclusion

Despite the current market backdrop, the Group is well-positioned to step into the second half of 2020, with approximately $220 million of total liquidity, a strong cash margin of 55% (through the six months ended 30 June 2020), healthy free cash flow increased the second quarter dividend by 7%. Following the successfully funded recent acquisitions, the Group has shown a strong balance sheet, with the closings of two secured, amortising financing transactions and an equity raise which combined totalled approximately $450 million in aggregate.  The Group has made a successful transition from AIM to the Premium Segment of the London Stock Exchange. Moreover, the dependable production and attractive margins underpin the commitment to produce substantial shareholder return through consistent quarterly dividends.

Over the course of 4 years (FY15 - FY19), the Company's revenue surged from $6.3 million in FY15 to $462.3 million in FY19. Compounded annual growth rate (CAGR) stood at 192.68%.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on Diversified Gas & Oil at the closing market price of GBX 104.60 (as on 12 August 2020) and will recommend fresh buying at the right time.
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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