Parkmead Group Plc

Parkmead Group Plc (LON: PMG) is FTSE AIM All-Share index listed upstream oil and gas company founded in 2000 and headquartered in Aberdeen, the United Kingdom. With operations in two segments namely Oil and Gas Exploration and Production and Energy Economics, the Company produces gas from four fields in the Netherlands. 

Investment Rationale – Expensive at GBX 46.33

• The Company reported a significant decline in revenue in H1 FY2021 YoY due to operating in an environment which is full of challenges and uncertainty.
• The Company’s margin ratios are extremely unfavourable compared to the industry medians. In terms of EBITDA Margin (industry median 47.1%), Pre-Tax Margin (industry median 9.2%) and Net Margin (industry median 6.3%), the Company fares extremely poorly compared to the industry. This makes the Company a poor target for investment.
• The stock price is currently trading near its 52-week high of GBX 47.60 which indicates potential pullback possibility.
• The 14-day RSI is in the over-bought territory and hence the stock price could correct in the short term.

Key Risks

• Uncertain Covid-19 induced macroeconomic conditions could impact the business.
• Changes in Government policy, regulatory risk, etc.
• The foreign exchange fluctuations could impact the financial performance.

Financial Highlights (for the six months ended 31 December 2020 (H1 FY2021)

(Source: Company Website) 

• Due to challenging conditions, revenue was down ~26.7% YoY from GBP 2.111 million in H1 FY2020 to GBP 1.548 million in H1 FY2021.
• However, due to significant cost savings initiatives, Net loss decreased by ~9.6% YoY from GBP 1.716 million in 1H FY2020 to GBP 1.552 million in H1 FY2021.
• Continued losses resulted in the Company’s cash position going down ~5.2% YoY from GBP 25.9 million in H1 FY2020 to GBP 24.5 million in H1 FY2021.
• The Company does not plan to offer any dividends to its shareholders. 

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Conclusion

Despite challenging market conditions, the Company has a strong core of profitable gas production and a balanced portfolio with significant growth potential. Also, there was improvement in bottom line. Going forward, the management maintains its appetite for acquisitions and is carefully exploring several opportunities. However, the company is trading near its 52-week high, raising doubts on its upside potential from current prices. The stock made a 52-week low and high of GBX 25.55 and GBX 47.60, respectively.

Based on the above rationale, we have given an “Expensive” recommendation on Parkmead Group Plc at the current price of GBX 46.33 (as on 22 April 2021 at 3:00 PM GMT), and with support from few catalysts needs to be evaluated at a later stage such as acquisition opportunities undertaken by the Company after which we would revisit our stance accordingly.

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