Premier Oil PLC (PMO) is a London, the United Kingdom-based international oil and gas production and exploration multinational group. The company has oil and gas interests in the Falkland Islands, the North Sea, Latin America, and South East Asia. The company's operations are differentiated according to five geographical segments: the Falkland Islands, the United Kingdom, Vietnam, Indonesia, and the Rest of the World. As opposed to the 'downstream' refining and retail sector, the company is majorly engaged in the 'upstream' sector of the industry – the production and exploration segment.

Financial Highlights (FY2018, US$ million)

(Source: Annual Report, Company Website)

Total revenue from all operations, which includes Pakistan, increased from $1,102 million reported in 2017 to $1,438.3 million in 2018, while revenue from continuing operations (excluding Pakistan) rose to $1,397.5 millionfrom $1,043.1 million in 2017. In 2018, total operating costs at $16.9/boe were below the low end of $17- $18/boe guidance. Due to higher production and realised prices during the year, EBITDAX for 2018 from continuing operations surged by 50 per cent to $882.3 million against $589.7 million for 2017. Net Profit after tax was $133.4 million, rising from a loss of $253.8 million reported in 2017. This resulted in a basic EPS (continuing and discontinued business) of 17.3 cents, versus a loss of 49.4 cents in 2017, reflecting an increase in sales revenue and the subsequent impact on operating profits. Driven by higher production, sales volumes and realised prices, the cash flow from operating activities increased considerably from $475.3 million in 2017 to $777.2 million in FY18. Capital expenditure stood at $279.8 million in 2018. Capital expenditure for activities in 2019 is expected to be around $340 million. Due to strong cash flow generation and the successful conversion of the group's convertible bond notes during the year, the company reduced its net debt by $393 million to $2.3 billion, indicating that debt reduction remains a key corporate priority.

Share Price Performance

Daily Chart as at May-09-19, after the market closed (Source: Thomson Reuters)

On 9^th May 2019, PMO shares closed at GBX 85.68, down by 5.85 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 146.90/GBX 54.70. The company’s stock beta was 3.45, reflecting higher volatility as compared to the benchmark index.

Valuation Methodology

(Note: All forecasted figures have been taken from Thomson Reuters. All USD figures have been converted into GBP; USD: GBP - 0.77)

Conclusion
The company's financial performance is heavily dependent on oil and gas prices.Since the company has no control over global supply and demand, the prices can be subject to significant fluctuations. These fluctuations can affect the company's ability to deliver on its strategy and impact the business assumptions. The low-cost base and a disciplined Capex programme undertaken by the group has resulted in strong operational performance and will further help in generating material free cash flow. The company has reduced its debt considerably and seeks to improve its leverage position further, helped by selective investment in new projects such as Tolmount, Sea Lion and Zama. Helped by Catcher Area, strong performance is expected to continue in 2019. Production is also expected to increase, and the group seeks to reduce its debt further. Moreover, the demand for Indonesian gas from Singapore remained robust. Based on above factors and supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 85.68 (as on 9th May 2019) with single-digit upside potential based on 2.02x NTM EV/Sales multiple (approx.) on FY19E sales (approx.).

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