Cairn Energy Plc – With an Extensive Experience as an Operator
Cairn Energy Plc (LON: CNE) is an independent oil and gas production and exploration company based out of the United Kingdom.

Drilling Update
On 5^th May 2020, Cairn Energy released an update on the drilling activities at Mexico. The operations at Block 7 based Ehecatl-1 exploration well has been completed in Sureste Basin Offshore in the Mexican region. The group has 30 per cent working interest through Capricorn Energy Mexico, a wholly-owned subsidiary. The well does not have any reservoir hydrocarbons and has been abandoned and plugged on a permanent basis.

Operational Update – Reduction in Capital Expenditure in FY2020
On 27th March 2020, Cairn Energy released an update on the operational performance. The group has through deferrals and reductions in the financial year 2020 is planning to make capital expenditure reduction by 23 per cent.

Financial Highlights - Reflecting Decent Performance FY2019 (31st December 2019)
Net oil production stood at 23,000 bopd, reflecting the upper end of guidance (2018: 17,500 bopd). In the financial year ending 31st December 2019, driven by an increase in the oil sales for the period, the group’s revenue increased to USD 533.4 million versus USD 410.3 million in FY2018. Driven by lower operating expenses for the period, the group reported an operating profit of USD 154.9 million in FY2019 versus an operating loss of USD 129 million in FY2018.

Share Price Performance

Daily Chart as of May 5^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Cairn Energy Plc shares were trading at GBX 118.40 at the time of writing before the market close (at 12:48 PM GMT+1) on 5^th May 2020 and up by 4.41% versus the previous day closing price. Stock's 52 weeks High is GBX 216.80 and Low is GBX 57.35.

Valuation Methodology

*Peers: Genel Energy Plc, EnQuest Plc, Pharos Energy Plc and IGas Energy Plc.

*Currency exchange Rate for 1USD = 0.80274 GBP.
 
Growth Catalysts
The company had entered into various strategic alliances with the government to expand its operations. It is expanding its operations to Senegal, Norway and Mexico, which is expected to generate good production volumes for the company.
 
Conclusion
 
The group remained discipline while investing in the new projects, as the recent macro-economic factors are making the environment more challenging. Due to the outbreak of coronavirus (COVID-19), the oil prices have fallen substantially in the first quarter of 2020. The recent crisis between Saudi Arabia and Russia over oil price crisis resulted in the share price to fall. Presently, the company also faces volatility in the macro-environment. The company has recorded decent financial performance for the financial year 2019. The company has shown good top-line and the bottom-line performance for the period. In the current operational update, Cairn shows a good increase in production. The group expects first oil from Senegal-Sangomar field in the year 2023 with gross production of 100,000 bopd.
 
Based on the decent growth prospects and the valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 109.80 (as on 5^th May 2020, before the market close at 8:00 AM GMT+1) with lower double-digit upside potential based on 4.35x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).
 
Custodian REIT Plc – For investors seeking high and stable dividends

Custodian REIT Plc (LON: CREI) is a Leicestershire, the United Kingdom-based real estate investment trust (REIT). Its property portfolio includes retail, industrial, office, retail warehouse and office properties.

Update on Covid-19 and Unaudited Net Asset Value
On 29^th April 2020, Custodian REIT released an update to report unaudited NAV (net asset value) for the period from 1^st January 2020 to 31^st March 2020 and the impact of Covid-19 on business performance. The group’s NAV total return per share stood at 1.1 per cent for FY2020 versus 5.9 per cent in FY2019. The NAV per share stood at 101.6 pence with NAV of GBP 426.7 million as on 31^st March 2020 versus NAV per share of 104.4 pence and the NAV of GBP 430.2 million as on 31^st December 2019. The company’s EPRA earnings per share stood at 7 pence in FY2020 versus 7.3 pence in FY2019. The approved dividend for the period was 1.6625 pence per share payable on 29^th May 2020, making total dividends paid and approved of 6.65 pence in FY2020 versus 6.55 pence in FY2019. The Net gearing stood at 22.4 per cent loan-to-value, with cash and borrowings of GBP 25 million and GBP 150 million, respectively. The market capitalisation stood at GBP 415.9 million as on 31^st March 2020 versus GBP 469.7 million as on 31^st December 2019. The group is focused on managing liquidity to mitigate the Covid-19 impact and maintaining income level.

Share Price Performance

Daily Chart as of May 5^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Custodian REIT Plc shares were trading at GBX 85.6315 at the time of writing before the market close (at 12:52 PM GMT+1) on 5^th May 2020 and up by 0.04% versus the previous day closing price. Stock's 52 weeks High is GBX 120.60 and Low is GBX 81.40.

Valuation Methodology

*Peers: Londonmetric Property Plc, Town Centre Securities Plc and Land Securities Group Plc.

Growth Catalysts
The group make an investment in well-diversified real estate in the United Kingdom, offering a higher and stable dividend for investors. The company has a well-positioned balance sheet with a strong financial position.

Conclusion
The group witnessed a decline in the NAV total return per share in the financial year 2020 ending 31^st March 2020. The NAV per share and NAV declined for the period from 1^st January to 31^st March versus reported values as on 31^st December 2019. Custodian REIT PLC has a robust business model and a strong balance sheet. The strength of the company is blue-chip tenants for the prime retail warehouse assets, and this also represents the opportunities with strong rental growth in rent review and lease renewal. Due to covid-19 outbreak, the rental income has declined, which is the primary source of income for the investors. The management is taking all the required steps to preserve liquidity and maintain the income level.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 83.00 (as on 5^th May 2020, before the market close at 1:00 PM GMT+1).


*All forecasted figures and Peers information has been taken from Thomson Reuters.

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