I3 Energy PLC

I3 Energy (LON: I3E) is an FTSE AIM All-Share index listed oil and gas entity that has a growing production base in Canada's most prolific hydrocarbon region.

The Company had paid a special dividend of 0.16 pence per share on 06 August 2021 and an interim dividend of 0.2 pence per share on 29 October 2021.

Investment Rationale – SELL at GBX 13.11

• Weak Profitability: The Company’s net loss had widened during H1 FY21 when compared with the prior-year levels.
• Low Liquidity Levels: I3E’s current ratio and quick ratio remained lower than the respective industry median during H1 FY21.
• Target Price Breached: The Company had breached the target levels provided in the last coverage. Thus, it is a decent opportunity for the investors to book profit at current levels.
• Unfavourable Technical Indicators: From a technical standpoint, the momentum oscillator 14-day RSI (~63.42) is around the overbought zone, while the stock price is hovering close to the upper Bollinger Band.

Key Risks

• Omicron Variant: The Government-led restrictions under Plan B because of an increasing number of Covid-19 cases in the UK may adversely impact the UK Equities. Moreover, the rising omicron cases worldwide may adversely impact the crude oil price.
• UK GDP: The UK economy witnessed a disappointing GDP growth of around 1.1% during Q3 FY21, less than the estimates of 1.3%.

Recent Updates

Appointment of Brokers: On 18 November 2021, I3E announced the appointment of Stifel Nicolaus Europe Limited as a joint corporate broker alongside Tennyson Securities and WH Ireland Limited.

Q3 FY21 Operational and Financial Update (as on 26 October 2021)

• Decent Production: During Q3 FY21, the average production stood around 13,740 boepd (barrels of oil equivalent per day), while the September 2021’s average was 18,985 boepd.
• Drilling: The Company had managed to complete drilling for six wells, adding combined net production of 565 boepd.

One Year Share Price Chart

(Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative) 

Conclusion 

I3E plans to invest USD 47 million of capital into the Canadian assets in 2022, with the programme of work including its participation in 17 new wells. However, I3E is a penny stock, and it is exposed to significant volatilities. Furthermore, the Company’s stock price had breached the target levels provided in the last coverage. Thus, it would be prudent for the clients to book profit at the current levels on this loss-making entity. The stock made a 52-week High and Low of GBX 16.80 and GBX 4.66, respectively.

Based on the loss-making nature, weak liquidity levels, and unfavourable valuation conducted above, we have given a “SELL” recommendation on I3 Energy PLC at the current market price of GBX 13.11 (as on 29 December 2021 at 08:24 AM GMT).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

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