President Energy — Maximising value from conventional assets

President Energy — Maximising value from conventional assets

President Energy’s (PPC) drilling activity is due to recommence in H120 and, alongside significantly increased production from Estancia Vieja, will contribute to a 2020 management estimated average production rate of over 4,000boepd, up from an average of c 2,400boepd in 2019. Following the debottlenecking of a section of the evacuation pipeline system, PPC expects to increase the share of gas in its production mix to c 30%. This comes at a time when there seems to be more clarity from the new president of Argentina, Alberto Fernández, on the importance of the country’s oil and gas industry. PPC also announced that Trafigura acquired an equity position in the company, with PPC’s debt reduced by c $6m, demonstrating confidence in its business plan. CEO Peter Levine is a 29.7% shareholder and principal funder, ensuring that interests are aligned with those of all shareholders.

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Written by

President Energy

Maximising value from conventional assets

Oil & gas

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10 February 2020

Price

3.9p

Market cap

£49m

US$1.26/£

Share price graph

Share details

Code

PPC

Listing

AIM

Shares in issue

1,211m

Business description

President Energy is a South America-focused oil and gas company with a portfolio of operated onshore producing and exploration assets, primarily in Argentina but also in Paraguay and the US. 2P reserves in Argentina stand at 26mmboe and 2019 average production was c 2,400boepd.

Bull

Focus on production increase.

Focus on high-margin production.

Strong operational cash flow.

Bear

Current negative market sentiment on region.

Key wells’ natural decline.

Downhole issues affecting production.

Analysts

Carlos Gomes

+44 (0)20 3077 5700

Elaine Reynolds

+44 (0)20 3077 5713

President Energy’s (PPC) drilling activity is due to recommence in H120 and, alongside significantly increased production from Estancia Vieja, will contribute to a 2020 management estimated average production rate of over 4,000boepd, up from an average of c 2,400boepd in 2019. Following the debottlenecking of a section of the evacuation pipeline system, PPC expects to increase the share of gas in its production mix to c 30%. This comes at a time when there seems to be more clarity from the new president of Argentina, Alberto Fernández, on the importance of the country’s oil and gas industry. PPC also announced that Trafigura acquired an equity position in the company, with PPC’s debt reduced by c $6m, demonstrating confidence in its business plan. CEO Peter Levine is a 29.7% shareholder and principal funder, ensuring that interests are aligned with those of all shareholders.

Targeting production in excess of 4,000boepd in 2020

PPC is focusing on its Rio Negro assets in Argentina, which provide the highest-margin returns in the company’s portfolio. Independently assessed net Argentinian 2P reserves of 25.9mmboe at end 2019 include 13.4mmboe in the Nequen Basin, an increase of 20% from 2018. An important milestone of first gas from Estancia Vieja was achieved in November 2019 and group production is expected to increase by more than 1,000boepd in gas from late February 2020, when a 16km section of restrictive pipeline is expected to have been replaced and commissioned.

Conventionals still have a role to play in Argentina

Although there is still no defined programme for Argentina’s oil and gas industry, the newly appointed president, Alberto Fernández, recognises the importance of the industry to the country. He emphasised that currently there is low exploration activity and low investment in conventional oil production, and that the government will work to bring stability to the industry and stimulate investment.

Reduced impact from macroeconomic environment

Argentina currently has an unsustainable debt burden, with more than $50bn due in 2020, and fears of defaulting are still reflected in the US dollar vs Argentine peso exchange rate. Nonetheless, PPC’s cash losses due to FX were only c 1% of revenues in 2019. Decree 566, imposed by the previous government following the primary elections in August 2019, limited realisable prices for oil producers in Argentina and squeezed margins, negatively affecting PPC’s H219 results. However, since the decree’s expiry in November 2019, realised prices have recovered and with that revenue and profits. This is reflected in consensus estimates, which show revenue increasing from c $42m in 2019 to c $71m in 2021.

Consensus estimates

Year
end

Revenue
($m)

EBITDA
($m)

PBT
($m)

Net debt/
(cash) ($m)

Capex
($m)

Free cash flow ($m)

12/18

47.2

16.7

8.4

28.1

(8.4)

4.0

12/19e

42.3

11.3

(0.1)

30.8

(13.9)

(3.7)

12/20e

65.8

24.7

11.7

24.6

(16.2)

6.3

12/21e

70.7

31.8

15.4

9.6

(14.7)

11.4

Source: Refinitiv

EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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Sydney +61 (0)2 8249 8342

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NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

Keywords Studios — Reassuring CMD, residual concerns dispelled

Keywords Studios’ capital markets day (CMD) on 5 February 2020 was very well attended and reassuring. The company will continue to grow a balanced, diversified business. Organic growth remains strong over the short to medium term: for FY20 we forecast 15% y-o-y revenue growth, up 12% on the FY19 closing annual run rate (ARR), supported by the launch of next-gen consoles. Increasing scale helps to attract larger clients and raise barriers to entry. Keywords’ strategic approach to ‘buy and build’ delivers for both the company and the studios. We retain our view that Keywords is strongly positioned as the only games service provider at a global scale. The company’s P/E rating (29.2x FY20e) reflects its leading market position, track record and potential, but should fall further as Keywords continues to execute its buy-and-build strategy.

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