Overview
Victoria Oil & Gas Plc (VOG) is a domestic energy supplier. The group is engaged in the gas distribution, exploration, and production business in Cameroon. It also markets the sale of hydrocarbons and other related activities. It operates in the UK, Russia, the British Virgin Islands, Guernsey, Kazakhstan and Cyprus. Victoria is headquartered in London, the UK.

Recent News
Victoria Oil & Gas announced the signing of the non-binding term sheet with Aksa Energy (Aksa Enerji Uretim A.S.). As per the term sheet Victoria Oil & Gas will supply 25mmsfd of gas Aksa Energy.  The agreed gas price would be US$6.75 per mmbtu for 25 years with an extension option for more 5 years.

Trading Update
In the Q2 FY2019, the gas production rate on average was 9.72 mmscfd versus 10.10 mmscfd in Q1 FY2019. The company gas sales (gross) was at 838 mmscf in Q2 FY2019 as against 903mmscf in Q1 FY2019.
 The company announced the signing of the settlement agreement to make full and final payment of the outstanding debt of $1.4 million with Rental Ltd and Weatherfords Services.

Financial Highlights – Financial Year 2018 (31st December 2018, US$, thousand)

(Source: Annual Report, Company Website)

The company’s reported revenue in the current year of 2018 increased from $23.5 million in FY2017 to $10.8 million related to the sales of gas. EBITDA for the year 2018 stood at a loss of $0.5 million, a massive decrease from the financial year 2017. The Group produced a loss before tax of $8.3 million as compared with the fiscal year 2017 of $10.7 million, and a loss after tax stood at $8.5 million. The basic and diluted loss per share was 5.79 cents in FY2018 against the loss of 8.86 cents in FY2017. Working capital declined to $1.4 million due to the collection of cash from partners and customers, set off against payments made to drilling contractors. The capital investments were down to $3.4 million as against $39.8 million in the financial year 2017. The company’s net debt position at FY 2018 stood at $17.4 million.

Share Price Performance

Daily Chart as at 26th September 19, before the market close (Source: Thomson Reuters)

On 26th September 2019, Victoria Oil & Gas Plc shares were trading at GBX 8.50 at the time of writing before the market close (at 8:47 AM GMT) and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 36.00/GBX 8.02.

Valuation Methodology

*Peers: Matra Petroleum AB, Wentworth Resources Plc and Enerplus Corp.

Conclusion
In FY 2018, the company’s top-line performance has declined, and the profitability remained in the negative zone.Though the company has reduced its administrative expenses which resulted in some improvement in the operating profits.

The company signed a non-binding term sheet with Aksa Energy which will help them with revenue benefits in the future. The company announced the signing of the settlement agreement to make full and final payment of the outstanding debt of $1.4 million with Rental Ltd and Weatherfords Services.

The company expects to finalise a new agreement with ENEO related to payment guarantee security in coming few days. Meanwhile, ENEO is yet to pay Victoria for gas consumed in 1Q19. The focus is now back on growing sales and signing new grid power contracts. 

Based on above rationale and supported by the valuation as done above, we have given a “Speculative Buy” recommendation at the closing price of GBX 8.50 (as on 25th September 2019) with a single-digit upside potential based on 2.80x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
 
*The Speculative buy recommendation is valid for the current price as covered in the report (as on 26th September 2019).
*All forecasted figures and Peer information have been taken from Thomson Reuters.Currency exchange rate taken for 1 USD = 0.80868 GBP.

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