Overview
Highlands Natural Resources Plc (HNR) is a UK based oil and gas company providing technical products and services. The company identifies the portfolio of projects which generate stable revenue of 80 per cent and has the potential for stimulating capital appreciation. The company’s area of operations includes Colorado shale, Highlands Water Resources, Enhanced oil recovery, Kansas nitrogen discovery and Montana Project.

The company through a share placed raised £1.3 million to establish cannabidiol subsidiary in Colorado, US. The company issued shares at 8.5 pence per share to raise the required funds. The raised funds were used to create a new subsidiary Zoetic Organics which will develop an organic and vertically integrated cannabidiol operation.

Trading Update
The company’s total oil production from 8 wells was around 2,700 Bopd and combined gas production stood at 4,000 Mcfpd (approx.) from East Denver. The company operates 5 new wells at choke size of a 25/64th inch and sixth at 29/64th inch. The products manufactured by Zoetic Organics, the wholly owned subsidiary of Highlands, will be available to Schrader Oil convenience stores and will generate initial income in June. Zoetic had established its own website for direct retail sales. 

Financial Highlights – H1 Financial Year 2019 (£)

(Source: Interim Report, Company Website)

In the first half of the financial year 2019 ending 30th September 2018, the company’s reported revenue was £522,408. The company had started generating revenue from its 3 projects in the current period. Till the last financial year, the company was in the development phase and was relying on its cash balance. In H1 FY2019, the company’s operating loss stood at £2,506,327against a loss of £2,289,080 in H1 FY2018, reflecting an increase of 9.5 per cent. The company’s loss before and after taxation stood at £4,389,839 in H1 FY2019 versus a loss of £2,289,080 in H1 FY2018. The company’s loss per share increased by 28.52 per cent to 3.74 pence in H1 FY2019 from a loss per share of 2.91 pence in first half FY2018. The company’s Cash and cash equivalents for the first half of FY2019 stood at £1,993,973 against £2,932,464 in H1 FY2018.

Share Price Performance

Daily Chart as at June-10-19, before the market closed(Source: Thomson Reuters)

On June 10, 2019, at the time of writing (before the market closed, at 9:15 AM GMT), Highlands Natural Resources Plc shares were trading at GBX 10.75, up by 2.38 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 26.02 /GBX 8.13. At the time of writing, the share was trading 58.69 per cent lower than the 52w High and 32.23 per cent higher than the 52w low. Stock's average traded volume for 5 days was 720,537.20; 30 days – 994,574.50 and 90 days – 765,664.22. The average traded volume for 5 days was down by 27.55 per centas compared to the 30 days average traded volume. The outstanding market capitalisation was around £14.33 million.

Conclusion
Although the company’s revenue increased significantly in the first half of the financial year ending 2019, the profitability margins have remained stagnant or declined. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of the competitors. The company’s cash generation from its operations remained negative for the period. The company is majorly relying on its East Denver Project to generate revenue and uncertainty due to political or economic factors will hamper the company’s operations. The company might fail to obtain further financing for acquisitions and business development.

Presently, the company is trading near its 52-week low, raising doubts at its upside potential at current prices. Keeping in mind the weak relative valuation of the company and weak financial performance, we recommend investors to keep a cautious “Watch” on the stock at the current price of GBX 10.75 (before the market close), while we look for any upcoming catalysts.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.