Diversified Gas & Oil Plc – Focus on Lifelong Income Producing assets with low risk and costs
Diversified Gas & Oil Plc (LON: DGOC) is an Oil & Gas producers’ company in the Appalachian Basin in the United States. The company is a well-established operator and owns oil wells and is producing natural gas.

Q1 FY2020 Update on Trading and Operational Performance
On 4^th May 2020, Diversified Gas & Oil released an update on the trading and operational update for the first quarter ending 31^st March 2020. The group maintained net daily production of 94 Mboepd with focus on maintaining safety requirements and practicing social distancing. Driven by an average hedge price of natural gas of $2.73/MMBtu, the adjusted EBITDA stood at around USD 78 million in Q1 FY2020. The group’s total unit cash expenses stood at $6.98/Boe in Q1 FY2020, reflecting a decline of 22 per cent versus $8.90/Boe in Q1 FY2019. The company expanded hedge portfolio with around 90 per cent with production hedged at $2.73/MMBtu in 2020 and $2.59/MMBtu in 2021 and maintained dividend payments per quarter. DGOC announced dividend of 3.50¢/share in Q1 FY2020, which demonstrate strong free cash flow generation ability of the company in low commodity prices period. The groups’ distributions for Year-to-date include around USD 22 million as dividends and approximately USD 16 million in repurchase of shares. On 14^th April 2020, DGOC successfully raised USD 200 million from amortising securities with 8.5-year financing and will reduce the utilisation of RCF (revolving credit facility) of the company. The available liquidity stood at USD 190 million for the period.

Share Price Performance

Daily Chart as of May 4^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Diversified Gas & Oil Plc shares were trading at GBX 96.00 at the time of writing before the market close (at 12:40 PM GMT+1) on 4^th May 2020 and remained same versus the previous day closing price. Stock's 52 weeks High is GBX 135.00 and Low is GBX 52.69.

Valuation Methodology
 
*Peers: Premier Oil Plc, Cairn Energy Plc, SDX Energy Plc and Indus Gas Ltd.

*Currency exchange rate taken for 1 USD = 0.80441 GBP.
Growth Catalysts
The company aims to provide visibility and security on cash flow and protect the downside by engaging in hedging, at the cost of potential upside, which protects it from any adverse fluctuation in market prices. The group through deploying new extraction technology and deploying rigorous field management programs, the company seeks to maximize output from its portfolio in an efficient way.

Conclusion
The sector is exposed to political, financial and operational risks, each of which has the potential to impact company/industry performance significantly. The company has shown decent financial performance in the first quarter of the fiscal year 2019. The new acquisitions made by the company helped them to capture more customers, increased their capabilities and expansion in other markets as well. Despite the uncertain environment and low commodity prices, the group managed to maintain its net daily production with maintained adjusted EBITDA versus Q4 FY2019. The group will commence trading on the main market from 18^th May 2020.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 94.05 (as on 4^th May 2020, before the market close at 9:25 AM GMT+1).

Bushveld Minerals Ltd- Diversi?ed vanadium product portfolio with a decent growth

Bushveld Minerals Limited is a Johannesburg, South Africa-based development and exploration company dealing in mineral projects. 

Decent Operational Performance in Q1 FY2020
On 4^th May 2020, Bushveld Minerals released an update on the operational performance in the first quarter of the financial year 2020 ending 31^st March 2020. The production at Q1 FY2020 stood at 652 mtV from Vametco versus 649 mtV in Q1 FY2019, despite the higher rainfall and nation-wide lockdown. Due to increased customer demand, thesales in the Q1 surged by 77 per cent to 898 mtV in Q1 FY2020 versus Q1 FY2019, while the underlying production cost declined by 8 per cent to US$18.90/kgV versus Q1 FY2019, reflecting weaker ZAR:USD rate. The group is ramping up its production to normal levels after 35 days lockdown and stood in line with risk-adjusted strategy of the Government for economic activity. At Vanchem, the operating performance remained decent with quarterly production of 219 mtV with sales of 182 mtV for the period. The adjusted production cost stood at US$18.5/kgV in the Q1 FY2020 and expect inventory levels to get normal in the second quarter of the financial year 2020. For Bushveld Energy, the group received approval for vanadium electrolyte plant construction. The company has taken required steps to control its costs and preserve cash. The group secured facilities from Nedbank for ZAR375 million, including revolving credit facility of ZAR125 million and a term loan of ZAR250 million. To provide financial flexibility and enhance its liquidity, the company drew down RCF of ZAR125 million. The gross cash balance stood at USD 34.4 million as on 31^st March 2020.

Share Price Performance

Daily Chart as of May 4^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Bushveld Minerals Ltd shares were trading at GBX 12.29 at the time of writing before the market close (at 12:42 PM GMT+1) on 4^th May 2020 and down by 4.54% versus the previous day closing price. Stock's 52 weeks High is GBX 33.90 and Low is GBX 7.75.
 
Valuation Methodology
 

*Peers: Kenmare Resources Plc, Central Asia Metals Plc, Chamberlin Plc and Shanta Gold Ltd.

Growth Catalysts
The company has good control over its input costs which resulted in an increase in the profitability of the company. The company has many growth projects under the pipeline.  

Conclusion
In the first quarter of the financial year 2020, Vametco delivered a strong position. Despite the higher rainfall and nation-wide lockdown, the group managed to increase its production and sales with lower costs for the period. Along with these, fluctuation in commodity price and exchange rates could affect the profitability of the company. The company expected that operational improvements would help it to achieve its stated guidance for the year. The growth with undrawn facilities of ZAR375 million, which will further enhance the company's financial position. The company has the potential to grow its business and could provide investors with an opportunity to invest for the long term.
Based on the above factors and supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 11.79 (as on 4^th May 2020, before the market close at 11:20 AM GMT+1), with lower double-digit upside potential, based on 9.80x NTM Price/Earnings multiple (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.