Anglo Pacific Group PLC

United Kingdom-based Anglo Pacific Group PLC (APF) is a mining company, which primarily focus on royalties associated with the mining of natural resources. The group’s producing royalties comprise of Narrabri, El Valle- Boinas/Carles (EVBC), Maracas Menchen, Kestrel, and Four Mile. Its development royalties contain Amapa & Tucano, Groundhog, and Salamanca. The group's early-stage royalties comprise of Dugbe 1, Ring of Fire, and Pilbara.

Financial Highlights (H1 FY2019, £’000)

(Source: Interim Results, Company Filings, LSE)

In H1 FY2019, the company saw continued progress from the group's portfolio of royalties. Trade tensions between China and the US remain to cast doubt across the market, but for the moment this has not significantly affected the commodity markets which drove the company's revenues. The striving volume progress expectations set by the Kestrel owners for FY19 have eventuated in the H1 FY19, through royalties being paid on sales volumes which were up by 50 per cent against the same period in 2018.

In H1 FY2019, the company’s royalty related revenue increased by 64 per cent to £31.3 millionas compared with the corresponding period of the last year, due to an increase in Kestrel, Narrabri, and four-mile. Profit before tax rose to £41.2 millionagainst the £18.6 million in H1 FY18. The earnings per share stood at 16.76 pence in the current period, an increase against the 7.24 pence in H1 FY18. In the first six months of the year, net assets climbed by £42 million to £260.1 million. This was mainly attributable to a surge in the Kestrel valuation, along with a substantial surge in the value of the company's LIORC investment. The cash generated from operating activities increased by 78 per cent to £26.6 million against the £15.1 million in H1 FY18. Free cash flow surged by 53 per cent to £27.4 million against the same period in 2018.

Share Price Performance

Daily Chart as at August-23-19, before the market closed (Source: Thomson Reuters)

On 23rd August 2019, at the time of writing (before the market close, GMT 12:22 PM), Anglo Pacific Group PLC shares were trading at GBX 188.50 and increased by 1.344% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 229/GBX 127. The company’s stock beta was 1.11, reflecting the higher movement of the stock as compared to the benchmark index.

Valuation Methodology

*Peers: Trinity Exploration and Production PLC, Atalaya Mining PLC, Bushveld Minerals Ltd., Central Asia Metals PLC, NAK Kazatomprom AO, Acacia Mining PLC, and Hargreaves Services PLC
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Conclusion
In Q3 FY19, the volatility in the exchange rate had a decent impact.The company has entered into additional forward contracts to defend a portion of anticipated revenue, which should benefit the company when translating full-year 2019 revenue at the end of this current year.

The company had reported another period of robust organic growth in the first half of the current year, with record revenue from Four Mile and Kestrel, due to the new owners seem to be on track to deliver their desires to surge production in the year 2019 by 40 per cent.

On an annualised basis, the company received £3.2 million in the first half of 2019 alone represented an underlying yield of 16 per cent. During the period 2019, the company continued to generate substantial free cash flow, which allowed to repay the borrowings in full year. At the end of the period, the cash-on-hand offers US$100 million of liquidity to the company, which is even further vital in the context of near-term volatility in the capital markets.

The company had shown decent growth in the financial performance for the first half of the financial year 2019. Both the top-line and the bottom-line performance for the period had improved and also expect to accelerate the full year 2019 dividend per share from 8 pence to a minimum of 9 pence, depending on market conditions.

Based on the above factors and supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 186 (as on 22nd August 2019) with lower double-digit upside potential, based on 8.83x NTM Price/Earnings multiple (approx.) on FY19E earnings per share (approx.).
 

SDX Energy PLC

United Kingdom-based SDX Energy PLC (SDX) is a global oil and gas exploration, development and production company. The company's operations are mainly focused on North Africa. The company’s operations comprise of South Disouq, North West Gemsa, Meseda, Morocco, and Egypt.

Financial Highlights (H1 FY2019, US$ million)

(Source: Interim Results, Company Fillings, LSE)

In H1 FY2019, the company’s net revenues increased by 4 per cent to $25.4 millionas compared with the corresponding period of the last year. The netback decreased to $18.5 million against the $19.3 million in H1 FY18. EBITDAX reduced to $15.1 million as compared to $16.2 million in H1 FY18. Total comprehensive loss stood at $0.4 million as compared to the previous year same period data. In H1 2019, operating cash flow before capex stood at $13 million against the $20 million in H1 FY18. On 30^th June 2019, cash and cash equivalents stood at $11.2 million, with the EBRD of $10 million facilities remained undrawn. In the first half of 2019, production was 3,539 boe/d.

Share Price Performance

Daily Chart as at August-23-19, before the market closed (Source: Thomson Reuters)

On 23rd August 2019, at the time of writing (before the market close, GMT 1:22 PM), SDX Energy PLC shares were trading at GBX 20.50 and decreased by 14.58% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 61.69/GBX 15.60.

Conclusion
Although the company’s revenue had increased in the first half of the financial year 2019. The company had been able to reduce its operating losses due to the effective management of its operating expenses. The company’s profitability remained in the negative zone in H1 FY19. A mixed movement in the commodity prices may negatively impact the economic viability and profitability of the company’s projects.
The company operates in a challenging environmentwhich requires continuous investment, sometimes at the cost of profitability, to stay ahead of its competitors. The company has a higher degree of threat due to future exploration, development and production uncertainties.

Therefore, based on the fundamental analysis, we have given a “Watch” recommendation at the closing price of GBX 24 (as on August 22, 2019), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and peers have been taken from Thomson Reuters.
*Speculative Buy recommendation is also valid at the current price as on August-23-2019.

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