This report is an updated version of the report published on 24 May 2022 at 8:10 AM GMT+1.

Trinity Exploration & Production PLC

Trinity Exploration & Production PLC (LON: TRIN) is an FTSE AIM All-Share listed oil and gas exploration & production entity.  

Investment Rationale for Valuation – Speculative Buy at GBX 117.00

• Decent Fundamentals: Trinity delivered strong financial performance in FY21, and it is remained in a solid cash position to leverage its cash and asset base to drive value and returns.
• Resilient Operational Update: On 19 April 2022, TRIN had unveiled the production update (for the three-month period ended 31 March 2022). The production during Q1 FY22 averaged at 3,013 bopd and remained flat against Q4 FY21 despite COVID-19 disruption on workforce capabilities and resultant equipment uptime. At the end of Q1 FY21, the cash balance was US$17.5 million, reflecting strong cash generated from operations.
• Growth Drivers: Trinity’s core business remained robust, while the resumption of drilling activities, bright prospects of the Galeota project, and strong crude oil prices outlook in the near term shall propel the share price growth. Moreover, the acquisition of PS-4 is completed, which is likely to enhance the contiguous acreage.
• Technical Indicator: The momentum oscillator 14-day RSI (~28.27) is confirming the oversold scenario, supporting the upside potential in the near term.
• Undervalued Multiples: On a forward 12-month basis, EV/Sales, and EV/EBITDA multiples are quite lower than the median of the Energy sector.

Key Risks

• Oil Price Concerns: The rally of oil price can remain under pressure with economic concerns over a possible recession and China's COVID-19 curbs.
• Gloomy Outlook: The year 2022 is expected to be the year of inflation, Central Bank tightening, and wage pressure. All these factors can hurt the corporate profits and equity markets.

Financial Highlights (for the year ended 31 December 2021, as of 24 May 2022)

(Source: Company Website)

• Strong Performance: Trinity delivered resilient performance in FY21 as strong average price per barrel driven the solid increase in revenue despite lower production against FY20. Subsequently, the operating profit jumped to US$10.0 million (FY20: US$3.0 million).
• Solid Balance Sheet: The Group ended the year with cash position of US$18.3 million (2020: US$20.2 million).

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: Great Eastern Energy Corporation Ltd, Wentworth Resources PLC, and Union Jack Oil PLC.

*All selected peers are LSE-listed Companies from the Energy sector.

*1 USD = ~0.79 GBP. 

Conclusion

The Group reported stable production volumes during Q4 FY21 and Q1 FY22, while the smooth transition of the recently acquired PS-4 asset into the Onshore portfolio shall enhance production into Q2 FY22.

Based on the decent fundamentals, stable production volumes, expected synergy from acquisitions and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Trinity Exploration & Production PLC at the closing market price of GBX 117.00 (as of 23 May 2022) with lower double-digit upside potential based on 8.63x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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