Egdon Resources — Shale activity on the rise

Egdon Resources (AIM: EDR)

Last close As at 28/03/2024

GBP0.04

0.00 (0.00%)

Market capitalisation

25m

More on this equity

Research: Energy & Resources

Egdon Resources — Shale activity on the rise

Egdon Resources retains several value catalysts over the course of 2017/2018; these encompass the company’s conventional as well as unconventional asset portfolio. Key catalysts include exploration and appraisal at Springs Road, Holmwood, Resolution, Biscathorpe, and North Kelsey as well as Wressle development. Capital commitments are being kept to a minimum through existing cost-carry arrangements and planned farm-outs. Planning consent approvals continue to hinder the pace of activity; however, central government appears to be supportive of unconventional gas development, attracting sector investment from the likes of Total, Centrica and Ineos. Our Egdon valuation has increased slightly to 21.5p/share risked conventional value and 26.0p/share for indicative unconventional upside potential.

Analyst avatar placeholder

Written by

Energy & Resources

Egdon Resources

Shale activity on the rise

Outlook

Oil & gas

17 July 2017

Price

7.38p

Market cap

£19m

US$1.3/£

Net cash (£m) at January 2017

6.8

Shares in issue

259.4m

Free float

51%

Code

EDR

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(14.5)

(24.4)

(32.7)

Rel (local)

(13.2)

(24.8)

(39.9)

52-week high/low

17.6p

7.2p

Business description

Egdon Resources is an AIM-listed onshore oil and gas exploration company. The group has conventional and unconventional assets in the UK and France.

Next event

Interim results

Q317

Analysts

Sanjeev Bahl

+44 (0)20 3077 5700

Ian McLelland

+44 (0)20 3077 5756

Egdon Resources is a research client of Edison Investment Research Limited

Egdon Resources retains several value catalysts over the course of 2017/2018; these encompass the company’s conventional as well as unconventional asset portfolio. Key catalysts include exploration and appraisal at Springs Road, Holmwood, Resolution, Biscathorpe, and North Kelsey as well as Wressle development. Capital commitments are being kept to a minimum through existing cost-carry arrangements and planned farm-outs. Planning consent approvals continue to hinder the pace of activity; however, central government appears to be supportive of unconventional gas development, attracting sector investment from the likes of Total, Centrica and Ineos. Our Egdon valuation has increased slightly to 21.5p/share risked conventional value and 26.0p/share for indicative unconventional upside potential.

Year
end

Revenue
(£m)

PBT*
(£m)

EBITDA
(£m)

Net cash
(£m)

Capex
(£m)

07/15

2.1

(4.5)

(4.0)

5.2

(3.3)

07/16

1.6

(2.7)

(0.7)

2.7

(2.4)

07/17e

1.2

(1.9)

(0.9)

4.8

(1.7)

07/18e

2.5

(1.3)

0.2

2.0

(3.0)

Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Five key conventional projects in 2017/2018

Egdon is investing in five key conventional projects in 2017/2018: Wressle field development, Holmwood and North Kelsey exploration, as well as appraisal of Resolution and Biscathorpe. Capital commitments are being kept to a minimum with Egdon’s net capital budget for 2018 estimated at £3m, subject to completion of farm-outs and receipt of government approvals. Holmwood in particular has attracted recent industry interest after further Weald Basin (Kimmeridge limestones) exploration success. The addition of Fiskerton Airfield to the company’s asset base, announced recently, is a small positive adding c $0.5m to core NAV.

Unconventional: From planning to exploration

Egdon’s unconventional portfolio, albeit still in the exploratory stage, remains a key part of the company’s investment story with a total holding of over 200,000 net shale prospective acres. 2017 should see an increase in physical activity with exploration results from Springs Road and a potential flow test at Cuadrilla’s Preston New Road. Valuation of Egdon’s unconventional licence position is subjective at this point given uncertainties that exist around planning timelines, well economics and play sweet spots. We expect reduced uncertainty in relation to UK shale commerciality and well economics over the course of 2017/2018.

Valuation: Prices and politics weigh on share price

Our valuation consists of a core (2P) valuation of 3.5p/share, 18.0p/share for risked exploration and appraisal ($70/bbl long-term Brent) and indicative shale upside of 26.0p/share. Market valuation remains affected by political uncertainty and spot oil price volatility – NAV sensitivity to oil price is included within this note.

Investment summary

Company description: Exploitation of proven basins

Egdon Resources is an independent E&P focused on oil and gas exploration and exploitation across proven basins in the UK, targeting a mix of conventional and unconventional resources. The company is debt-free and benefits from carried interests across a number of its licence blocks. Egdon is looking to grow its unconventional resource exposure in northern England, add reserves and resources through active drilling and maximise returns from its existing production portfolio through selective investment.

Valuation: Acreage-based valuation for unconventional

Our Egdon valuation is constructed of a risked net asset value for the company’s conventional asset portfolio and we also include an indicative valuation for the company’s unconventional acreage based on a $/acre multiple. Our conventional asset core value stands at 3.5p/share (including net cash) and we include 18.0p/share for risked exploration. Our indicative shale valuation stands at 26.0p/share.

Financials: Unleveraged UK shale play

Egdon had £6.8m of cash and no debt as of 31 January 2016. Operating cash flow is expected to increase on delivery of first oil from Wressle, which we now expect in 2018. Egdon continues to invest in the company’s unconventional asset base, while keeping risk capital to a minimum through existing cost-carry arrangements and farm-outs.

Sensitivities: Shale moving from planning phase to exploration

Key sensitivities for Egdon, other than commodity price, include the timing and duration of planning processes and sources of finance for upcoming exploration and appraisal. Planning processes are exceptionally hard to predict, and there has been recent history of projects being held up through judicial review processes and planning objections. It is important to note that, despite delays, a number of conventional and unconventional projects have been approved to proceed, including Cuadrilla’s unconventional exploration activity in Lancashire and initial exploratory drilling at Springs Road. With regard to funding options, Egdon continues to farm down licences swapping equity interest for cost carries on work programmes. Cost of capital across the small-cap E&P sector remains high with farm-in partners requiring c 20% risked returns and equity issues being conducted at significant discounts to NAV. We assume Egdon is diluted by up to 50% for unfunded exploration assets in our valuation. We note that our conventional asset valuation (including risked exploration and appraisal) is leveraged to oil price and our base case of 21.5p/share is predicated on a long-term oil price of $70/bbl Brent. A reduction in oil price assumption to $50/bbl Brent would reduce this to 16.9p/share; direct oil price exposure is reduced by gas assets such as Resolution exploration risked value within the asset mix.

Company description: Egdon Resources

Egdon Resources is an AIM-listed, independent E&P focused on conventional and unconventional oil and gas exploration, development and production in the UK. Egdon currently produces c 100b/d in the UK, with the group’s current focus on appraisal of existing discoveries and low-risk conventional exploration. Unconventional exposure is through over 200,000 net acres of prospective shale acreage in the East Midlands, Bowland Basin and Cleveland Basin.

Leading UK shale independent

Egdon has maintained a strong balance sheet during the recent downturn while growing its UK shale footprint. The exploration and appraisal of shale in the UK is not without geological and planning risk, but Egdon is well placed to benefit from a recent increase in interest in UK shale and activity levels. The appraisal of UK shale remains in its infancy, but thick, brittle carboniferous sections with high gas saturations/total organic content are encouraging from a technical perspective. As drilling and testing activity picks up in 2017 and 2018, we expect greater understanding of UK geology, shale per well economics and play sweet spots.

Group strategy

Egdon has three stated strategic objectives:

Grow the company’s exposure to unconventional resource and exploration opportunities in northern England.

Add reserves/revenues through active drilling while managing the company’s financial exposure.

Continued focus on maximising profitable production through targeted investment.

Management

Egdon’s management team comprises a number of professionals with geological backgrounds. This includes Mark Abbot, CEO, a founding director and trained geologist who has worked at the British Geological Survey, British Gas and Anadarko. Technical Director Jerry Field has a breadth of exploration experience with much of his career working on Egdon’s core areas in the UK onshore and France. Exploration Director Martin Durham has held several senior exploration roles at LASMO, ENI and Northern Petroleum. As CEO of Realm Energy, Commercial and Business Development Director James Elston drove acquisitions of shale gas and tight oil acreage in Europe following in-depth, basin-by-basin technical review and ranking.

Political considerations

At the time of writing, the Conservative government agreed to partner with the Democratic Unionist Party (DUP) to form a coalition government. It is important to note that the largest political parties in the UK, which include the Conservatives, Labour and Liberal Democrats, have vastly different views on the topic of UK shale gas exploration to the extent that the two main parties are diametrically opposed.

The Conservatives have voiced a supportive stance, for both conventional and unconventional oil and gas, recognising the importance of the sector for the provision of skilled jobs and energy security, whereas Labour’s 2017 election manifesto proposed a ban on fracking and an accelerated phase-out of fossil fuels within the energy mix. The Liberal Democrats also proposed a ban on fracking within its 2017 election manifesto. Clearly, there is a risk that current legislation covering fracking may change on the back of future election results – we see this as a long-term investment risk.

US shale experience

The discovery and extraction of shale gas in the US has been a revolution. Gas prices have fallen, driving growth in the American economy and pushing down prices for consumers. The US has become less reliant on imported foreign energy and is more secure as a result. And because shale is cleaner than coal, it can also help reduce carbon emissions. We believe that shale energy has the potential to do the same thing in Britain, and could play a crucial role in rebalancing the UK economy, providing security of supply while providing baseload generation capacity to act in conjunction with intermittent power sources such as wind and solar.

We recognise that shale in the UK is unlikely to be as prolific as in the US due to higher population density, differences in mineral ownership rights and more onerous planning processes.

Conventional asset portfolio

Key projects within the conventional asset portfolio for Egdon for 2017/2018 include:

Development of Wressle;

Holmwood exploration;

Biscathorpe oil appraisal;

Resolution gas appraisal; and

North Kelsey exploration.

Wressle (PEDL180, 25% Egdon): Wrestling with Wressle

On 11 January 2017, the North Lincolnshire County Council planning committee refused planning consent for the development of the Wressle oil field, despite a positive recommendation from the planning officer. As of April 2017, Egdon had appealed this decision and reapplied for planning permission after making adjustments to the proposal. In July 2017, Egdon’s second planning application was refused and Egdon will now take the original January 2017 determination to appeal, due to be heard in November 2017. As such, we do not expect first oil from Wressle until CY18 (likely Q2) in our forecasts, although this will slip further if the November appeal is unsuccessful.

Egdon’s production guidance was revised down from 165boe/d to 100-110boe/d for FY17 (year ending July 2017) in February 2017. Our asset valuation is broadly in line with recent Wressle M&A benchmarks. In September 2016, Union Jack acquired a 3.34% interest at an implied valuation of £17.9m gross and in November 2016 Upland farmed-in to the asset at an implied gross valuation of £18.5m gross (including contingent consideration). Both transactions helped underpin our DCF valuation, which currently stands at $22.4m (£17.2m at $1.3/£) after production deferment.

Much of the objection surrounding Egdon’s planning application appears to be due to the use of acidisation and proppant squeeze to improve well productivity at Wressle. We note that, according to the briefing paper on acidisation by the American Petroleum Institute (API), this technique has been used for almost 120 years and is now one of the most widely used methods of well stimulation globally (including the UK North Sea). The API views the US regulatory framework surrounding the use of acid as well-developed and mature, as are the operational and safety practices employed by operators and service providers.

Resolution (PEDL1929, 100% Egdon): 3D seismic

Egdon retains a 100% interest in the gross 164bcf (mean prospective resource) Resolution (formerly A prospect) discovery made by Total in 1966. Egdon expects to commit to a 3D seismic programme (expected cost £1m gross) in 2017, ahead of prospect farm-down. 3D seismic will assist in the location of a horizontal appraisal well, which is intended to be drilled from the offshore to reduce technical and planning risks. The tight carbonate reservoir was tested at 2.5mmscfd but Egdon expects that this could increase to 25-50mmscfd on test through the use of modern drilling techniques (horizontal well) and well acidisation. In the success case, Egdon anticipates that the discovery would be developed through a minimal offshore gas facility with onshore pipeline and gas processing. The Resolution anticline is seen as analogous to BP’s significant Ravenspurn carboniferous prospect, which is currently being drilled. In our valuation, we assume a post farm-down working interest in Resolution of 50%.

Exhibit 1: Resolution prospect location

Exhibit 2: Resolution gas discovery seismic line

Source: Egdon Resources

Source: Egdon Resources

Exhibit 1: Resolution prospect location

Source: Egdon Resources

Exhibit 2: Resolution gas discovery seismic line

Source: Egdon Resources

Biscathorpe (PEDL253, 52.8% Egdon): Drill ready

Exploration and appraisal of the net 7.4mmboe Biscathorpe prospect (Egdon retains a 52.8% interest) is expected in the first half of CY18 where Egdon is targeting thicker sands down-dip of a 1987 BP oil discovery. BP had targeted Biscathorpe at a crestal location, finding oil shows over a 1.2m sand section. Planning and environmental permits are in place to enable drilling to proceed. In the event of delays, we expect the partner group to apply for a licence extension as the current PEDL is expected to expire in June 2017. Biscathorpe is included in our conventional RENAV on a risked basis at 6.8p/share. Its net size and high working interest make this a material prospect for Egdon. Management retains the option to farm-down ahead of drilling to preserve capital and reduce net exposure, which we estimate at £1.3m.

Holmwood (PEDL143, 18.4% Egdon): Material activity in 2017

The Europa-operated Holmwood prospect is planning approved, after an appeal in 2015, and is set to be drilled in 2017. Egdon remains fully carried for the Holmwood exploration well by UK Oil and Gas Investments (UKOG) at an estimated gross cost of c £3m. The primary reservoir targets include the Portland and Corallian reservoir sands with incremental resource potential within the Kimmeridge Micrites proven by the Horse-Hill oil discovery on adjacent PEDL137, and at Broadford Bridge on PEDL234, which is currently being tested.

Portland and Corallian reservoir sands

The primary target at Holmwood is the Portland sandstone, which is proven to be productive at the Brockham field directly to the north-east and also during the flow-test of the Horse Hill discovery in CY16 (323bopd stable dry oil flow). Over the last six months, Angus Energy has modified the Brockham well site in preparations of oil production in summer 2017. Egdon has an 18.4% interest and net unrisked prospective resource of 1mmbbl within the Portland and Corallian; however, Kimmeridge Micrite prospective resource offers upside that we do not include in our valuation at this stage.

Kimmeridge Micrite upside

A number of wells have materially de-risked the weald basin Kimmeridge Micrite play in recent months including the Horse Hill oil discovery, the Brockham-X4z side-track and the Broadford Bridge (BB-1) exploratory well.

Exhibit 3: Holmwood prospect (PEDL143)

Source: UKOG PLC

The Horse Hill Kimmeridge Micrite play was de-risked post successful flow test of the upper and lower Kimmeridge units, following which the Angus Energy operated, BR-X4Z side-track confirmed the presence of numerous interbedded limestone and shales with gross thickness of 385m. A 200m band of the reservoir at Brockham-X4Z is naturally fractured and is to be placed on production following final consent from the OGA.

UKOG has a 100% interest in PEDL234 to the south-west of Holmwood. On 26 June 2017, UKOG announced that light oil had been observed seeping from core samples recovered from BB-1 and that wet gas readings were maintained throughout a 330ft core section – identical to those seen at Horse-Hill 27km to the north-east. UKOG believes the discovery to be significant with the possibility of a 600-700ft naturally fractured reservoir section, underlying a significant proportion of the wider Weald Basin. We expect further details to be released on the BB-1 oil discovery once electric logs and extended flow testing has been completed in July. We see this as a positive read for Egdon’s interest in the upcoming Holmwood well (PEDL143) to the north-east.

Upcoming activity across the Portland sand play includes an extended well test at Horse Hill in late 2017/2018 (subject to planning). Third party Xodus estimates the Horse Hill Portland contingent resource to be 0.5mmbbl to 3.7mmbbl gross (2C 1.5mmbbl). Europa estimates gross unrisked prospective resource for the Portland/Corallian play on PEDL143 (Holmwood) at 5.6mmbbl gross P50 and 33% GCOS.

Exhibit 4: PEDL143 stratigraphy

Source: Egdon Resources

In addition to E&A activity, there have been a number of asset transactions and farm-outs across the Horse Hill play. On 6 February 2017, Angus Energy acquired a 12.5% economic interest in Holmwood (PEDL143) from Europa Oil and Gas. The terms of the acquisition are:

12.5% of back costs to 1 February 2016 (£26,563 net cost)

25% of Holmwood-1 exploration well up to a gross well cost of £3.2m

12.5% of non-well costs and gross well costs in excess of £3.2m

Deferred payment to be made from net proceeds of sales from PEDL143 (not quantified)

As the upfront consideration is essentially limited to back costs and a two-for-one carry with few details on contingent consideration, it is difficult to benchmark against our risked valuation. However, the implied gross PEDL valuation of £6.6m by the cost carry and back costs compares with our risked valuation of $10.0m gross or £8m.

North Kelsey (PEDL143, 80% Egdon): Farm-out in 2017

The North Kelsey prospect is expected to be drilled in Q417 to H118, subject to farm-out of Egdon’s 80% interest. North Kelsey is a Wressle look-alike targeting 6.5mmbo gross P50 unrisked prospective (5.18mmbo net) across multiple reservoir targets. Egdon plans to test for oil in the Penistone Flags as well as deeper reservoir intervals using a slim-hole well in order to minimise cost. Egdon may look for a licence extension as the initial term end-date was set at 30 June 2017.

Conventional asset acquisition – Fiskerton Airfield

On 10 July 2017, Egdon announced the acquisition of the Fiskerton Airfield oil field (site base on a former RAF airfield) from Cirque Energy for a consideration of $750k. The Fiskerton Airfield field is 7km east of Lincoln and was discovered in 1977, with cumulative production of 440mbbl to date. The light oil field is mapped to have most likely OIIP place of 2.2mmbbl, suggesting recovery to date of 20%. Egdon expects that a work programme consisting of two well workovers has the potential to recover an additional 100mbbl, taking total field recovery to 25%. Well workovers are expected to be relatively low cost at c £0.16m for the two-well programme. We estimate the acquired field to be valued at $1.3m, hence the deal is marginally accretive to NAV, adding c $0.55m or 0.15p/share.

Unconventional asset portfolio and activity

Egdon’s unconventional portfolio remains little changed from our last note (27 February 2017). We continue to value shale acreage on a notional dollars-per-acre basis, including 14 round awards. We use a unit valuation of $400 per acre (transaction values range from $200 per acre to $2,000 per acre). A full breakdown of our conventional and unconventional valuation is provided below.

Key 2017 newsflow for the UK onshore unconventional sector includes the fracturing of an existing well by Third Energy at KM-8 to establish flow potential and the drilling and frack of a well at Preston New Road by Cuadrilla. Construction work and site preparation has begun at Preston New Road. Activities at Springs Road are also likely to be progressed following recent planning approval and final planning consents.

KM-8 (Third Energy operated 100%)

In December 2016, Third Energy’s planning permission for KM-8 was upheld and the judicial review case by Friends of the Earth and Frack Free Rydale was dismissed. The council set 40 conditions that need to be fulfilled before planning permission is granted, which Third Energy is on its way to satisfying. The planning process has been protracted, taking nearly two years to date. It was initially expected that KM-8 testing would be in Q217, but this has since slipped.

Springs Road (IGas operated 14.5%, Total E&P 40%, Egdon 14.5%, eCorp 13.5%, Dart Energy 17.5%)

IGas received planning approval to drill two exploratory wells in Springs Road, Mission Springs, North Nottinghamshire in November 2016, and the site received final planning consents (Section 106) from Nottinghamshire County Council earlier this year. Egdon has a 14.5% carried interest after farm-out to Total. Total is to fund a $46.5m work programme with an option to exit after a minimum commitment of $19.5m.

Preston New Road (Cuadrilla operated 51.25%, AJ Lucas 23.75%, Centrica 25%)

In October 2016, Sajid Javid approved Cuadrilla’s application to drill, frack and test up to four wells at Preston New Road, Lancashire. Despite legal challenges, government lawyers defended the decision to grant planning consent to Cuadrilla and civil works have been completed ahead of drilling. A well is expected to be drilled in Q317 and fracked towards the end of CY17 with initial flow testing in early 2018.

Roseacre Wood (Cuadrilla operated 51.25%, AJ Lucas 23.75%, Centrica 25%)

A public inquiry into Cuadrilla’s second site in Lancashire, Roseacre Wood will be reopened in spring 2018 after the planning inspector refused planning consent in 2016. The reopened inquiry will give Cuadrilla the opportunity to provide additional evidence to support its planning application. On 12 April 2017, a High Court dismissed the challenge to the decision by the Communities and Local Government Secretary Sajid Javid to reopen the inquiry into this site. A planning inquiry is to be held in 2018.

Ineos – current activity

Ineos has extensive licence interests across North and South Yorkshire, the East Midlands and Cheshire. Ineos expect to submit numerous planning applications for core sampling across its licence base in 2017. It is expected that applications to frac and flow test sites deemed to be suitable for shale gas appraisal will follow.

Ineos’s current shale gas applications are as follows:

1.

Bramleymoor lane – a full application has been submitted to Derbyshire County Council for the drilling of a vertical well designed to ‘core’ sample rock for laboratory testing. There are currently no plans to fracture shale at the well site.

2.

Harthill – Ineos has submitted plans to explore for shale gas at the Harthill site between Sheffield and Worksop. A public consultation by Rotherham Borough Council runs until 21 July. Plans include the drilling of a vertical gas exploration well, extraction of a ‘core’ sample and a pressure transient test – the application excludes fracking at this stage.

3.

East Midlands seismic survey – starting in June 2017, Ineos is conducting a 250km2 3D seismic survey in the East Midlands starting near Harthill and finishing near Kings Clipstone. The survey is expected to take up to six months.

Recent government surveys of support and opposition for hydraulic fracturing suggest that the industry needs to do more to aid understanding of the processes involved and how both visible and subsurface environmental impact can be minimised. The current government believes that shale gas has the potential to provide the UK with greater energy security, growth and jobs, and believes that the process can be managed in order to limit risks to the environment, mitigate seismic activity and minimise greenhouse gas emissions.

Management

Mark Abbott – managing director

Mark is an experienced geophysicist and founding director of Egdon Resources. He graduated from Nottingham University in 1985 with a degree in exploration sciences (geology/geophysics/mining engineering). He worked for the British Geological Survey from 1985 to 1992 in the UK and overseas. Between 1992 and 1996 he worked in the International Division of British Gas Exploration and Production Limited and was employed by Anadarko Algeria Corporation from 1996 to 1997. He is a council member of UKOOG and a trustee of the UK Onshore Geophysical Library. He is also a director of MA Exploration Services and Bishopswood Pavilion.

Jerry Field – technical director

Jerry has over 30 years’ oil industry experience in small-to-medium sized E&P companies (including Weeks Petroleum, Triton, Ranger, Canadian Natural Resources, Toreador and Northern Petroleum). Jerry has a breadth of experience of exploration in Europe, Africa, the Middle East and the Indian subcontinent and has spent much of his career working in Egdon’s core areas of the UK onshore and France.

James Elston – commercial and business development director

James has 25 years’ experience in industry, banking and consulting. As CEO of TSX-V listed Realm Energy International in 2009/10, he drove the company’s acquisition of a significant acreage position for shale gas and tight oil in Europe following in-depth, basin-by-basin technical review and ranking. He spent five years working onshore E&P as an engineer at NAM in the Netherlands.

Martin Durham – exploration director

Martin graduated from the University of Wales in 1978 with a Bachelor of Science degree in geology and also holds a Master of Science degree in petroleum geology from Imperial College, London University (1982). Martin has significant industry experience gained through companies including Louisiana Land and Exploration, LASMO, Eni and Northern Petroleum. During this time he has held senior technical and management roles for exploration and field development projects. Martin was founding director of Union Jack Oil, a position he held until his appointment to Egdon in September 2014. Martin is a Fellow of the Geological Society and in 2012 he was awarded Honorary Life Membership of the Petroleum Exploration Society of Great Britain.

Martin Brooks – HSE and production manager

Martin worked in various industries in the implementation and management of specific production, health, safety and environmental mechanisms and ensuring compliance with ISO14001, prior to joining Egdon in 2007. He now has over seven years’ experience of managing onshore oil and gas production activities including commissioning the Kirkleatham gas field development. He oversees Egdon’s Planning and Environmental Permitting for the company’s UK onshore drilling activities and is also responsible for developing and implementing the company’s HSE management systems at both corporate and site-specific levels.

Risks and sensitivities

Sector risks

As with all companies in the sector, Egdon is leveraged to underlying oil and gas price assumptions. Leverage is largely operational as Egdon has zero debt, but mature UK onshore operations can be relatively high cost with individual asset operational costs ranging from $10-40/boe. For the six months ending January 2017, cash costs were $15.6/boe.

Edison’s relevant oil and gas price assumptions are shown in the table below.

Exhibit 5: Edison macro assumptions – Brent Crude and UK NBP

2017

2018

2019

2020

Brent $/bbl

51.8

57.2

67

73

UK NBP p/therm

41

42

43.1

44.2

Source: Edison Investment Research

Funding – small-cap E&P companies have relatively high costs of capital as access to debt can be limited for exploration and pre-development assets. Companies such as Egdon can be reliant on farm-outs, equity and asset sales with implied costs of capital ranging from 15-40%. For Egdon’s unfunded conventional asset portfolio, we assume funding through farm-out with c 50% value dilution.

Company-specific risks

Fiscal – Egdon’s operations are largely UK-based; hence the company is subject to changes in UK fiscal policy. As of late, fiscal terms have become more generous in order to incentivise investment in the UK energy sector despite the recent commodity price collapse. There is a risk that fiscal terms change if prices rise significantly from current levels.

Planning Planning processes for UK onshore conventional and unconventional drilling activity have led to project delays, most notably at Wressle. Nevertheless, Cuadrilla has received approvals that enable the company to drill and test a shale gas exploration/appraisal well in 2017. Egdon has also secured planning permission for wells at four locations, including North Kelsey and Biscathorpe. Successful planning applications such as these should act as a precedent for further approvals.

Valuation

As can be seen in our RENAV below, conventional producing assets constitute a small part of RENAV at 3.5p/share (including cash and net of G&A) and the bulk value of our conventional valuation lies in appraisal and development (18.0p/share).

Exhibit 6: Egdon updated RENAV

Assets

Country/

WI

GCoS

CCoS

Net

NPV/boe

NPV

Risked

$1.3/£, shares 259m

licence

%

%

%

mboe

$/boe

$m

p/share

Net (debt) cash January 2017 - post acquisition cost

8.1

2.40

G&A

(1.6)

(0.47)

Production

Avington

UK

27%

100%

100%

0.10

5.7

0.6

0.17

Keddington

UK

45%

100%

100%

0.09

5.1

0.5

0.13

Ceres

UK

10%

100%

100%

0.23

(2.6)

(0.6)

(0.18)

Fiskerton

UK

100%

100%

100%

0.10

12.4

1.3

0.38

Wressle (Ashover Grit)

UK

25%

100%

90%

0.15

25.7

3.4

1.0

Core NAV

11.6

3.45

Exploration

North Kelsey

UK

80%

24%

50%

3.88

17.3

8.1

2.4

Louth

UK

65%

40%

50%

0.85

13.5

2.3

0.7

Wressle (upside)

UK

25%

50%

50%

0.38

19.3

1.8

0.5

Broughton

UK

25%

45%

50%

0.11

19.3

0.5

0.1

Biscathorpe

UK

53%

40%

50%

7.24

15.9

23.0

6.8

Holmwood

UK

18%

33%

50%

1.03

10.8

1.8

0.5

Resolution

UK

50%

52%

50%

12.65

7.0

23.2

6.9

Appraisal & Exploration NAV

 

 

 

 

 

 

60.6

18.02

RENAV

 

 

 

 

 

 

72.3

21.48

Source: Edison Investment Research. Note: *Working interest after assumed farm-in (current working interest 100%). $1.3/£; 259m shares.

As mentioned above, we believe the company’s most valuable conventional assets are the Resolution prospect (risked 6.9p/share) and Biscathorpe prospect (risked 6.8p/share). In addition to this, we provide an indicative valuation for Egdon’s shale acreage at (26.0p/share).

Our 21.5p/share RENAV is based on a $70/bbl long-term Brent price and reduces to 19.2p/share at $60/bbl and 16.9p/share at $50/bbl. Egdon’s gas assets (the largest of which is the Resolution prospect) help support valuation under lower oil price scenarios.

In addition to our conventional valuation above, we include a dollars-per-acre valuation from unconventional resources. This is broken down by licence below.

Exhibit 7: Egdon net prospective shale acreage

Location

Region

Interest

Gross acreage

Net acreage

$/acre

Value
($m)

Value (p/share)

Gainsborough Trough

East Midlands

100.00%

4,448

4,448

400

1.8

0.53

Gainsborough Trough

East Midlands

100.00%

14,085

14,085

400

5.6

1.67

Gainsborough Trough

East Midlands

20.00%

15,321

3,064

400

1.2

0.36

Gainsborough Trough

East Midlands

100.00%

2,471

2,471

400

1.0

0.29

Gainsborough Trough

East Midlands

100.00%

1,483

1,483

400

0.6

0.18

Edale Shelf

East Midlands

100.00%

20,806

20,806

400

8.3

2.47

Edale Shelf

East Midlands

100.00%

2,718

2,718

400

1.1

0.32

Croxteth

Bowland Basin

100.00%

16,309

16,309

400

6.5

1.94

Manchester

Bowland Basin

100.00%

741

741

400

0.3

0.09

Manchester

Bowland Basin

100.00%

741

741

400

0.3

0.09

Gainsborough Trough

East Midlands

14.50%

59,453

8,621

1000

8.6

2.56

Gainsborough Trough

East Midlands

36.00%

15,815

5,693

400

2.3

0.68

Widmerpool Gulf

East Midlands

32.50%

19,768

6,425

400

2.6

0.76

Cleveland Basin

Cleveland Basin

68.00%

8,846

6,016

400

2.4

0.72

Gainsborough Trough

East Midlands

50.00%

30,221

15,110

400

6.0

1.80

Edale Shelf

East Midlands

100.00%

5,436

5,436

400

2.2

0.65

Humber

East Midlands

25%

39,537

9,884

400

4.0

1.17

Gainsborough North West JV

East Midlands

15.00%

48,433

7,265

400

2.9

0.86

Gainsborough South JV

East Midlands

15.00%

35,336

5,300

400

2.1

0.63

Gainsborough East JV 1

East Midlands

15.00%

27,429

4,114

400

1.6

0.49

Widmerpool 1

East Midlands

30.00%

47,197

14,159

400

5.7

1.68

Cloughton Area

Cleveland Basin

17.50%

27,182

4,757

400

1.9

0.57

Stainmore Trough

Cleveland Basin

49.99%

34,348

17,170

400

6.9

2.04

Humber Basin 1

East Midlands

60.00%

40,525

24,315

400

9.7

2.89

Kirk Smeaton

East Midlands

50.00%

9,390

4,695

400

1.9

0.56

Total

 

528,039

205,828

87.5

26.0

Source: Edison Investment Research, Egdon Resources. Note: $1.3/£.

Exhibit 8: Growth in mean net prospective undiscovered shale gas initially in place (GIIP)

Source: Egdon Resources FY results presentation, Edison Investment Research

Financials

Our short-term financial forecasts assume Wressle first oil in CY18, which drives a step-up in production to a forecast 155boe/d in FY18 and a material increase in operational cash flow to £0.2m. We expect cash generated from operations to be reinvested in appraisal or development of contingent resources as well as in progressing the company’s net shale acreage position. Egdon is actively pursuing farm-down and divestment of non-core assets to manage cash resource and risk exposure.

Cash flow

Cash generation is expected to increase post Wressle first oil but expect free cash flow to remain negative as Egdon deploys capital on shale gas related activity.

Balance sheet

Egdon remains debt-free with a last reported cash position of £6.80m at 31 January 2017. The company’s ability to fund its planned work programme for 2017 is contingent on the farm-down of its 52.8% interest in Biscathorpe exploration and 100% interest in Resolution appraisal. Work plans could be delayed if funding is not available.

Exhibit 9: Financial summary

£000s

2015

2016

2017e

2018e

Year end 31 July

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

2,068

1,586

1,228

2,463

Cost of Sales

(5,131)

(1,287)

(1,012)

(1,101)

Gross Profit

(3,063)

299

216

1,362

EBITDA

 

(4,015)

(733)

(925)

162

Operating Profit (before amort. and except.)

 

(4,539)

(2,652)

(1,833)

(1,322)

Intangible Amortisation

0

0

0

0

Exceptionals

0

0

0

0

Other

0

0

0

0

Operating Profit

(4,539)

(2,652)

(1,833)

(1,322)

Net Interest

(2)

(34)

(52)

0

Profit Before Tax (norm)

 

(4,540)

(2,686)

(1,885)

(1,322)

Profit Before Tax (FRS 3)

 

(4,540)

(2,686)

(1,885)

(1,322)

Tax

0

0

0

0

Profit After Tax (norm)

(4,540)

(2,686)

(1,885)

(1,322)

Profit After Tax (FRS 3)

(4,540)

(2,686)

(1,885)

(1,322)

Average Number of Shares Outstanding (m)

221

221

240

259

EPS - normalised (p)

 

(2.1)

(1.2)

(0.8)

(0.5)

EPS - normalised and fully diluted (p)

 

(2.0)

(1.2)

(0.8)

(0.5)

EPS - (IFRS) (p)

 

(2.1)

(1.2)

(0.8)

(0.5)

BALANCE SHEET

Fixed Assets

 

26,703

27,053

28,348

29,874

Intangible Assets

17,864

18,370

19,583

22,343

Tangible Assets

8,838

8,683

8,765

7,531

Investments

0

0

0

0

Current Assets

 

8,120

5,270

6,651

3,803

Stocks

0

0

0

0

Debtors

2,889

2,541

1,795

1,795

Cash

5,180

2,679

4,806

1,958

Other

50

50

50

50

Current Liabilities

 

(941)

(1,085)

(642)

(642)

Creditors

(941)

(1,085)

(642)

(642)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

(1,827)

(1,803)

(1,842)

(1,842)

Long term borrowings

0

0

0

0

Other long term liabilities

(1,827)

(1,803)

(1,842)

(1,842)

Net Assets

 

32,054

29,435

32,515

31,192

CASH FLOW

Operating Cash Flow

 

(1,437)

(159)

(604)

162

Net Interest

(0)

0

(29)

0

Tax

0

0

0

0

Capex

(3,255)

(2,379)

(1,656)

(3,010)

Acquisitions/disposals

78

0

(500)

0

Equity Financing

0

0

4,915

0

Other cash flow

35

8

1

0

Net Cash Flow

(4,580)

(2,529)

2,127

(2,848)

Opening net debt/(cash)

 

(9,667)

(5,180)

(2,679)

(4,806)

HP finance leases initiated

0

0

0

0

Other

(93)

(28)

(0)

0

Closing net debt/(cash)

 

(5,180)

(2,679)

(4,806)

(1,958)

Source: Egdon Resources accounts, Edison Investment Research

Contact details

Revenue by geography

Egdon Resources plc
The Wheat House
98 High Street
Odiham, Hampshire
RG29 1LP
www.egdon-resources.com

Contact details

Egdon Resources plc
The Wheat House
98 High Street
Odiham, Hampshire
RG29 1LP
www.egdon-resources.com

Revenue by geography

Management team

Managing director: Mark Abbott

Chairman: Philip Stephens

A geologist by training, Mr Abbott has gained experience at the British Geological Survey, BG and Anadarko. He co-founded Egdon Resources in 1997.

Mr Stephens is a corporate financier with significant City experience. He was head of UK corporate finance at UBS and joint head of corporate finance at Williams de Broe.

Exploration director: Jerry Field

Mr Field has over 30 years’ experience in the oil and gas industry. He has worked for a range of companies, including Ranger, Weeks and Northern Petroleum.

Management team

Managing director: Mark Abbott

A geologist by training, Mr Abbott has gained experience at the British Geological Survey, BG and Anadarko. He co-founded Egdon Resources in 1997.

Chairman: Philip Stephens

Mr Stephens is a corporate financier with significant City experience. He was head of UK corporate finance at UBS and joint head of corporate finance at Williams de Broe.

Exploration director: Jerry Field

Mr Field has over 30 years’ experience in the oil and gas industry. He has worked for a range of companies, including Ranger, Weeks and Northern Petroleum.

Principal shareholders

(%)

Petrichor Holdings Coperatif

16.24%

Alkane Energy UK

15.42%

Premier Oil

15.11%

Hargreave Hale & Co

10.16%

JP Morgan Asset Mgt

7.07%

Hargreaves Lansdown Asset Mgt

5.30%

Mr Mark Abbott

2.99%

Companies named in this report

Egdon Resources, Cuadrilla Resources, UK Oil and Gas Investments, Angus Energy, Cirque Energy, Third Energy, IGas, AJ Lucas, Ineos

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Egdon Resources and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Egdon Resources and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on Egdon Resources

View All

Energy & Resources

Egdon Resources — Year-end revenue up by more than 530%

Energy & Resources

Egdon Resources — Wressle continues to deliver

Energy & Resources

Egdon Resources — Wressle exceeds expectations

Energy & Resources

Egdon Resources — Wressle key to production increase

Latest from the Energy & Resources sector

View All Energy & Resources content

Energy & Resources

ABO Wind: EKF 2023 QuickView

Energy & Resources

Canacol Energy — 2022 ESG report highlights new goals

Energy & Resources

Canacol Energy — Q2 results in line

Energy & Resources

Canacol Energy — Increasing activity

Research: Industrials

Blue Cap — Sticking at it

Blue Cap is set to benefit from recent potentially transformative deals. The projected turnaround of Neschen may yield a step-change in profit, while the disposal of Biolink on a chemical industry-leading multiple confirms the success of management’s exit strategy. Otherwise, a strong, coherent business model is evident in a solid financial record and outlook. Indeed, current consensus forecasts appear not to reflect adequately the general improvement in trading and this virtual de-gearing; adjusted 2017e EV/EBITDA of under 7x ignores the proven corporate success and increasingly ambitious investment.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free