EnQuest Plc (LON: ENQ)

Business Overview
EnQuest Plc is a London-headquartered independent production and development company which is focused on profitably enhancing hydrocarbon recovery and prolonging the useful lives of assets.

Recent News
On 20^th February 2020, the company announced that its additional Notes have admitted to the Official List of the Financial Conduct Authority and to trading on the order book for retail bonds segment of the regulated market of the London Stock Exchange Plc.

Operations Update – Financial Year 2019 (31^st December 2019)
The Group’s production was up by 24 per cent year on year, due to Magnus acquisition and improved Kraken uptime. Operating expenditure during the period was expected to be approximately $525 million and unit opex is expected to be $21/Boe. Cash capital expenditure is expected to be approximately $240 million during the period which was below guidance of $275 million primarily due to phasing from 2019 in to 2020. Net debt reduced by $361 million to $1,413 million in the fiscal year 2019. In the year 2020 average net Group production is expected to be between 61,000 Boepd and 68,000 Boepd. For 2020, Operating expenditure is expected to be $525 million. The company expected capital expenditure to be around $230 million.

Share Price Performance  

Daily Chart as on 25^thFebruary 2020, before the market closed (Source: Thomson Reuters)

On February 25, 2020, at the time of writing (before the market close, at 12:45 PM GMT), Enquest Plc shares were trading at GBX 22.72, up by 0.24 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 30/GBX 15.24. The stock price is trading below its 50-day SMA which signals bearish sentiments.

From the technical standpoint, 14 days-Relative Strength Index of the stock is hovering near the oversold zone. However, for turnaround in stock price, confirmation of trend change is needed.

Enquest V/S Industry V/S Sector – 2 years

(Source: Thomson Reuters)

In the last two years, Enquest Plc share price declined by 16.61 per cent which is in line with the industry, declined by 15.45 per cent and sector declined by 16.19 per cent.

Valuation Methodology

*Peers: Hurricane Energy Plc, Serica Energy Plc, Transglobe Energy Corp and SDX Energy Plc

Conclusion
The company was exposed to the impact of changes in both Brent crude oil prices and gas prices on its revenue and profits. The company’s policy is to manage the effects of commodity prices to protect against volatility and allow the availability of cash flow for repayment of debt and investment in capital programmes. A material decline in oil and gas prices adversely affects the company’s operations and financial condition. Unanticipated changes in the regulatory or fiscal environment can affect the company’s ability to deliver its business plan and potentially impact the revenue and future developments. The company remained focus to reduce its net debt and expects its net debt to be below $1.5 billion at the end of the financial year 2019. The company is actively looking for acquisitions to expand its operations and production capabilities.

Based on the valuation and factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the current price of GBX 23.38 (as on 25th February 2020, before the market close at 8:02 AM GMT), with support from improvement in oil & gas markets needs to be evaluated at a later stage. 

Superdry Plc (LON: SDRY)

Business Overview
Superdry Plc is an apparel brand with the main focus on providing good quality products. The company’s products use British style with a mix of Americana and Japanese inspired graphics. The company’s products are known for its quality fabrics, exclusive detailing, authentic vintage washes, hand-drawn graphics and custom fits for unique styling.

Trading Update (for the period 10-weeks till 4th January 2020)
On 10th January 2020, Superdry announced its 10-weeks trading update till 4th January 2020. The company’s performance was lower than expected for the period. Also, the group’s decision to lower the inherited inventory position has adversely impacted sales for the company during the peak trading session. The company was encouraged by positive consumer response on Autumn/Winter 2019 stock, but that didn’t help in offsetting weaker trading in the previous period. In totality, these factors led to lower than estimated retail sales of GBP 23 million, since Black Friday, predominantly online. In the Wholesale segment, due to the timing issues, the performance was further impacted for the quarter and reported a further sales decline since Black Friday of GBP 5 million. The group also expects that Wholesale performance would partly reverse in the remaining of the year. The company's revenue declined by 15.8 per cent for the period driven by 18.5 per cent decline in the store revenue, 9.3 per cent decrease in the online sale and a decline of 16.9 per cent in its wholesale segment, respectively. The company’s cost initiatives and improved gross margins were not able to offset the impact created by the deterioration of sales. Based on the revised sales expectations for the remaining period of the FY2020 and prevailing tough trading situations in which the group is functional, it expects Underlying profit before tax (PBT) to be in the range of GBP 0 to GBP 10 million, respectively.

Share Price Performance  

Daily Chart as on 25^thFebruary 2020, before the market closed (Source: Thomson Reuters)

On February 25, 2020, at the time of writing (before the market close, at 2:00 PM GMT), Superdry Plc shares were trading at GBX 337.60, up by 0.54 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 577.23/GBX 329.20. The stock price is trading below its 100-day SMA which signals bearish sentiments.

Enquest V/S Industry V/S Sector – 1 year

(Source: Thomson Reuters)

In the last year, Superdry Plc share price declined by 35.05 per cent whereas the industry grew by 10.60 per cent and sector grew by 6.07 per cent.

Valuation Methodology
 


*Peers: Next Plc, Dunelm Group Plc, Kingfisher Plc, Joules Group Plc, M&S Group Plc and Ted Baker Plc

Conclusion
The group’s performance during the 10-week to January 04, 2020, was significantly lower and full-year performance is expected to be below the market expectations as well. The company’s revenue for the current period has declined as compared to the corresponding period of the last year’s performance, and the profitability margins have remained stagnant or declined. The uncertainty over the Brexit will impact the group’s business performance. As the company operates worldwide, their financial performance can be dented with the fluctuations in the exchange rate and can also lead the company towards legal and regulatory risks. The company expect the financial performance to reflect the historic issues inherited with uncertain market conditions in the financial year 2020. The company’s Price/Earnings multiple is significantly higher as compared to the industry multiple, reflecting overstretched valuations.

Therefore, based on the above rationale, we have given an “Avoid” recommendation at the current price of GBX 344.20 (as on 25th February 2020, before the market close at 8:13 AM GMT).
 
*All forecasted figures and information have been taken from Thomson Reuters.
*Currency exchange rate taken for 1 US Dollar = 0.7709 GBP.

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