Mosman Oil and Gas Limited

Mosman Oil and Gas Limited (LON: MSMN) is an FTSE AIM All-Share listed oil exploration, development, and production entity. It operates projects in the US and Australia.

Investment Rationale – SPECULATIVE BUY at GBX 0.1425

• Construction Completion: On 23 February 2022, MSMN announced that it had completed the construction of the gas network in East Texas, which shall enable them for the sale of gas from the Winters-2 well, and further build the Company’s production profile.
• Positive Production Update: On 26 January 2022, MSMN reported a 43% year-on-year (yoy) increase in H1 FY22’s net production.
• Favorable Dynamics: As the conflict in Ukraine escalated, disruption to Russian supply continued to support the oil price.
• Technical Indicators: MSMN's prices recently broke a downward sloping trend line by an upside and trading above the breakout level, indicating the possibility of an upside movement hereon. On the weekly chart, RSI (14-period) recovered from the lower levels and is currently at 60.71, supporting a positive bias. The trend-following indicators 21-period SMA and 50-period SMA are below the current market price, further supporting an up move.
• Outperformance Against Index: On a YTD basis, the stock price has soared over 86%, showing a significant outperformance against the FTSE AIM All-Share index.

Key Risks

• Continued Losses: MSMN is a loss-making entity with small market capitalization and is exposed to significant market volatilities.
• Macroeconomic Risk: 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 30 June 2021, as of 29 December 2021)

(Source: Company Website)

• Increased Production Post Losses: During FY21, revenue was down, and losses aggravated against FY20. However, post FY21 period the Company increased the production base and potential cash flows.
• Acquisition Benefit: The quarter ended 30 September 2021 (Q1 FY22) showed a 77% yoy increase in production to 110 boepd (barrels of oil equivalent per day) on the back of Falcon 1 and Nadsoilco acquisition.
  

One Year Share Price Chart

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

Conclusion

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

Based on the solid production results, operational developments, acquisition benefits, solid oil prices, recent share outperformance, we have given a “SPECULATIVE BUY” recommendation on Mosman Oil and Gas Limited at the closing price of GBX 0.1425 (as of 25 February 2022).

Investors with an extremely high-risk appetite can consider investing in the stock taking into account the provided support and resistance levels as well as other risks associated such as worsened losses, liquidity issues, ongoing geopolitical tension, and subdued macroeconomic dynamics.

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. 

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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