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Research: Energy & Resources
The acquisition of Circle Oil assets, strong oil prices and cost discipline drove up group operational netbacks from US$22.5/boe in H117 to US$32.9/boe in H118, with the group generating net cash from operations of US$20.3m. Funds from operations helped SDX Energy to support an active H118 drilling programme while maintaining a strong balance sheet position, ending the half-year with US$25.2m of cash and an undrawn credit facility of US$10m. As highlighted in our recent research note, Looking ahead at 2019 work programme, SDX remains on track to double production in 2018, while investing in an active E&A programme and development drilling in both Egypt and Morocco. Our valuation remains broadly unchanged at 92.7p/share (from 92.5p/share) as we include a slightly higher capex estimate for delivery of first gas at South Disouq.
Written by
SDX Energy |
Strong netback; active 2019 well programme |
Q218 results |
Oil & gas |
30 August 2018 |
Share price performance
Business description
Next events
Analysts
SDX Energy is a research client of Edison Investment Research Limited |
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The acquisition of Circle Oil assets, strong oil prices and cost discipline drove up group operational netbacks from US$22.5/boe in H117 to US$32.9/boe in H118, with the group generating net cash from operations of US$20.3m. Funds from operations helped SDX Energy to support an active H118 drilling programme while maintaining a strong balance sheet position, ending the half-year with US$25.2m of cash and an undrawn credit facility of US$10m. As highlighted in our recent research note, Looking ahead at 2019 work programme, SDX remains on track to double production in 2018, while investing in an active E&A programme and development drilling in both Egypt and Morocco. Our valuation remains broadly unchanged at 92.7p/share (from 92.5p/share) as we include a slightly higher capex estimate for delivery of first gas at South Disouq.
Year end |
Revenue |
PBT* |
Operating cash |
Net cash |
Capex |
12/16 |
12.9 |
(26.7) |
(1.9) |
4.7 |
(11.9) |
12/17 |
39.2 |
32.8 |
21.6 |
25.8 |
(24.9) |
12/18e |
56.0 |
18.6 |
42.3 |
28.7 |
(40.7) |
12/19e |
86.7 |
51.1 |
63.1 |
56.5 |
(37.2) |
Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Includes Circle acquisition ($28.1m).
Upcoming catalysts
2019 drilling will focus on Ibn Yunus lookalikes in Egypt, with combined unrisked recoverable volumes of c.201.5bcf and 34bcf in the Abu Madi structural trap. In addition, an upcoming bid round in Egypt could provide SDX with an option to extend its acreage position to include further Kafr el Sheik targets. SDX is also looking to test oil potential at South Disouq through the four-way drip, 50mmbo unrisked Young prospect in 2019. In Morocco, SDX has an 87% appraisal/development well success rate based on calibrated 3D seismic and is looking to leverage this success targeting 20bcf of gross unrisked resource in 2019.
Netbacks and balance sheet remain robust
SDX remains fully funded for planned work programmes based on our current forecasts with US$25m of cash at the half-year and an undrawn credit facility of US$10m from the European Bank of Reconstruction and Development, retaining the financial flexibility to pursue bolt-on acquisitions or additional activity through licensing rounds. Netbacks at US$32.9/boe were robust in H118, but we expect them to fall to US$19.4/boe in FY19 as higher volume/lower margin gas production from South Disouq comes on stream.
Valuation: No material changes
Our updated RENAV is broadly unchanged at 92.7p/share (from 92.5p/share). Key changes include an update on South Disouq prospective resource, and slightly higher capex offset by an increase in our short-term oil price estimates for FY18 and FY19, which are based on the latest EIA projections.
Valuation update
Our updated valuation is based on a 100bcf gas development at South Disouq and drill-ready gas prospects targeting 235.5bcf of mean unrisked prospective resource, with four prospects in Kafr El Sheik (Salah, Kahraba, Samir and Mohsen) and two prospects in the Abu Madi. We also continue to include the Young oil prospect, drilling for which is planned in 2019. In Morocco, we include our estimates of current discovered resource (following the 2017/18 E&A programme – excluding Lalla Mimouna until the well is tested). We also include Lalla Mimouna discoveries and 12 planned 2019 appraisal/development wells in our core valuation, as risks are only around individual wells meeting the minimum threshold for commerciality – we include these at a 75% chance of success.
Key changes include an increase in drill-ready prospective resource at South Disouq, slightly higher capex estimated for South Disouq offset by an increase in our short-term oil price assumptions, which move to US$71.7/bbl and US$70.6/bbl for 2018 and 2019. Our long-term oil price assumption remains at US$70.0/bbl Brent (2022). Our FX assumption has also changed slightly to US$/£0.73, based on the average of the first six months of 2018.
As a result, we have slightly increased our RENAV from 92.5p/share to 92.7p/share (0.2%), with our core value standing at 78.8p/share. We note that our valuation has a significant core value component at 85% of our RENAV.
Exhibit 1: Changes to our valuation
Old (p/share) |
New (p/share) |
Change (%) |
|
Core NAV |
79.8 |
78.8 |
-1.3 |
Development NAV |
3.7 |
3.4 |
-9.9 |
Exploration risked upside |
9.0 |
10.6 |
14.9 |
Group RENAV |
92.5 |
92.7 |
0.2 |
Source: Edison Investment Research
A full breakdown of our risked valuation is provided in the table below. We split our valuation between core value, which includes booked 2P reserves, recent discoveries and low-risk development upside in Morocco. We include risked development upside at Meseda and Gemsa and risked exploration potential at South Disouq in our risked exploration NAV (RENAV).
Exhibit 2: SDX Energy detailed valuation
Recoverable reserves |
Net risked value @12.5% |
|||||||||
Asset |
Country |
Diluted WI |
CoS |
Gross |
Net WI |
Net |
NPV |
Absolute |
GBp/ |
C$/ |
% |
% |
mmboe |
mmboe |
mmboe |
$/boe |
$m |
||||
Net (debt)/cash – December 2017e |
100% |
100% |
25.8 |
9.2 |
0.2 |
|||||
SG&A – NPV12.5 of 3 years |
100% |
100% |
(12.5) |
(4.4) |
(0.1) |
|||||
E&A expense for exploration prospects |
100% |
100% |
(18.5) |
(6.6) |
(0.1) |
|||||
NPV of net receivable recovery |
100% |
100% |
19.9 |
7.1 |
0.1 |
|||||
Sebou pipeline residual value (50% cost) |
100% |
100% |
16.4 |
5.8 |
0.1 |
|||||
Production |
||||||||||
Meseda Base + Workovers + Rabul |
Egypt |
50% |
90% |
9.8 |
4.9 |
1.9 |
4.9 |
21.7 |
7.7 |
0.1 |
Gemsa 2P |
Egypt |
50% |
100% |
4.5 |
2.3 |
2.3 |
11.7 |
26.4 |
9.4 |
0.2 |
Sebou 2P volume + discoveries to be booked |
Morocco |
75% |
100% |
1.2 |
0.9 |
0.9 |
38.7 |
35.1 |
12.5 |
0.2 |
Sebou 12-well 2019 programme |
Morocco |
75% |
75% |
5.3 |
4.0 |
4.0 |
29.6 |
89.0 |
31.7 |
0.6 |
South Disouq/Ibn Yunus |
Egypt |
55% |
100% |
17.6 |
9.7 |
9.7 |
1.9 |
18.2 |
6.5 |
0.1 |
Core NAV |
38.5 |
21.8 |
18.7 |
8.8 |
221.5 |
78.8 |
1.4 |
|||
Development upside |
||||||||||
Meseda Waterflood Upside |
Egypt |
50% |
50% |
6.3 |
3.1 |
1.2 |
5.1 |
8.0 |
2.9 |
0.1 |
Gemsa - Edison modelling on full field |
Egypt |
50% |
75% |
0.9 |
0.5 |
0.5 |
4.1 |
1.4 |
0.5 |
0.0 |
Exploration (known) |
||||||||||
Kafr el Sheik prospects x4 |
Egypt |
55% |
27% |
33.6 |
18.5 |
18.5 |
1.6 |
8.0 |
2.8 |
0.1 |
Abu Madi prospect x2 |
Egypt |
55% |
23% |
5.7 |
3.1 |
3.1 |
1.6 |
1.1 |
0.4 |
0.0 |
Young oil prospect |
Egypt |
55% |
19% |
50.0 |
27.5 |
27.5 |
4.0 |
20.6 |
7.3 |
0.1 |
Group RENAV |
135.0 |
74.5 |
69.5 |
260.7 |
92.7 |
1.6 |
||||
Source: Edison Investment Research; Note: Number of shares = 204.5m, FX = US$/£0.73.
The waterfall diagram below shows our valuation relative to the current share price.
|
Exhibit 3: SDX Energy valuation waterfall |
|
|
Source: Edison Investment Research |
Exhibit 4: Financial summary
Accounts: IFRS, Year-end: December, US$000s |
|
2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
||
INCOME STATEMENT |
|
|
|||||||
Total revenues |
|
|
11,372 |
12,914 |
39,166 |
56,002 |
86,654 |
85,544 |
|
Cost of sales |
|
(4,973) |
(5,282) |
(10,254) |
(11,334) |
(15,320) |
(13,529) |
||
Gross profit |
|
6,399 |
7,632 |
28,912 |
44,667 |
71,334 |
72,015 |
||
SG&A (expenses) |
|
(4,770) |
(3,679) |
(8,793) |
(5,500) |
(5,775) |
(6,064) |
||
Other income/(expense) |
|
1,021 |
1,701 |
1,820 |
1,186 |
1,914 |
1,526 |
||
Exceptionals and adjustments |
|
(7,676) |
(29,089) |
(725) |
(9,500) |
(1,000) |
(1,000) |
||
Depreciation and amortisation |
|
|
(2,057) |
(3,266) |
(17,824) |
(12,244) |
(15,374) |
(14,618) |
|
Reported EBIT |
|
|
(7,083) |
(26,701) |
3,390 |
18,609 |
51,099 |
51,860 |
|
Finance income/(expense) |
|
|
(96) |
4 |
(129) |
0 |
0 |
0 |
|
Other income/(expense) |
|
|
18,289 |
0 |
29,558 |
0 |
0 |
0 |
|
Exceptionals and adjustments |
|
0 |
0 |
0 |
0 |
0 |
0 |
||
Reported PBT |
|
|
11,110 |
(26,697) |
32,819 |
18,609 |
51,099 |
51,860 |
|
Income tax expense (includes exceptionals) |
|
|
(1,063) |
(1,503) |
(4,541) |
(1,831) |
(2,941) |
(2,604) |
|
Reported net income |
|
|
10,047 |
(28,200) |
28,278 |
16,778 |
48,158 |
49,255 |
|
Shares at end of period - basic |
|
|
38 |
80 |
204 |
204 |
204 |
204 |
|
BALANCE SHEET |
|
|
|||||||
Property, plant and equipment |
|
|
18,401 |
12,605 |
54,445 |
76,210 |
92,386 |
90,600 |
|
Goodwill |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
|
Intangible assets |
|
|
23,473 |
10,623 |
15,231 |
13,412 |
19,063 |
21,361 |
|
Other non-current assets |
|
|
2,106 |
2,503 |
2,724 |
2,724 |
2,724 |
2,724 |
|
Total non-current assets |
|
|
43,980 |
25,731 |
72,400 |
92,346 |
114,173 |
114,685 |
|
Cash and equivalents |
|
|
8,170 |
4,725 |
25,844 |
28,655 |
56,517 |
109,188 |
|
Inventories |
|
|
1,188 |
1,698 |
5,157 |
5,700 |
7,705 |
6,804 |
|
Trade and other receivables |
|
|
6,678 |
9,463 |
37,656 |
28,242 |
22,594 |
18,075 |
|
Other current assets |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
|
Total current assets |
|
|
16,036 |
15,886 |
68,657 |
62,597 |
86,815 |
134,067 |
|
Non-current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
|
Other non-current liabilities |
|
|
286 |
290 |
4,506 |
4,506 |
4,506 |
4,506 |
|
Total non-current liabilities |
|
|
286 |
290 |
4,506 |
4,506 |
4,506 |
4,506 |
|
Trade and other payables |
|
|
3,556 |
3,674 |
19,459 |
15,567 |
12,454 |
9,963 |
|
Current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
|
Other current liabilities |
|
|
928 |
389 |
2,473 |
2,473 |
2,473 |
2,473 |
|
Total current liabilities |
|
|
4,484 |
4,063 |
21,932 |
18,040 |
14,927 |
12,436 |
|
Equity attributable to company |
|
|
55,246 |
37,264 |
114,619 |
132,397 |
181,555 |
231,811 |
|
Non-controlling interest |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
|
CASH FLOW STATEMENT |
|
|
|||||||
Profit before tax |
|
|
11,110 |
(26,697) |
32,819 |
18,609 |
51,099 |
51,860 |
|
Net finance expenses |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
|
Depreciation and amortisation |
|
|
2,057 |
3,266 |
17,824 |
12,244 |
15,374 |
14,618 |
|
Share based payments |
|
|
761 |
(47) |
538 |
1,000 |
1,000 |
1,000 |
|
Other adjustments |
|
|
(12,281) |
25,742 |
(34,613) |
7,314 |
(1,914) |
(1,526) |
|
Movements in working capital |
|
|
(2,183) |
(3,440) |
5,412 |
4,979 |
530 |
2,929 |
|
Interest paid/received |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
|
Income taxes paid |
|
|
(4,678) |
(766) |
(364) |
(1,831) |
(2,941) |
(2,604) |
|
Cash from operations (CFO) |
|
|
(5,214) |
(1,942) |
21,616 |
42,315 |
63,148 |
66,276 |
|
Capex |
|
|
(5,120) |
(11,890) |
(24,917) |
(40,691) |
(37,200) |
(15,131) |
|
Acquisitions & disposals net |
|
|
0 |
0 |
(24,948) |
0 |
0 |
0 |
|
Other investing activities |
|
|
4,836 |
825 |
760 |
1,186 |
1,914 |
1,526 |
|
Cash used in investing activities (CFIA) |
|
(12,524) |
(284) |
(11,065) |
(49,105) |
(39,504) |
(35,286) |
||
Net proceeds from issue of shares |
|
|
0 |
10,127 |
48,510 |
0 |
0 |
0 |
|
Movements in debt |
|
|
(3,702) |
(96) |
(43) |
0 |
0 |
0 |
|
Other financing activities |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
|
Cash from financing activities (CFF) |
|
|
(3,702) |
10,031 |
48,467 |
0 |
0 |
0 |
|
Increase/(decrease) in cash and equivalents |
|
|
(9,200) |
(2,976) |
20,978 |
2,811 |
27,862 |
52,672 |
|
Currency translation differences and other |
|
|
(565) |
(469) |
141 |
0 |
0 |
0 |
|
Cash and equivalents at start of period |
|
17,935 |
8,170 |
4,725 |
25,844 |
28,655 |
56,517 |
||
Net (debt)/cash end of period |
|
|
8,170 |
4,725 |
25,844 |
28,655 |
56,517 |
109,188 |
|
Movement in net (debt)/cash over period |
|
|
(7,558) |
(3,445) |
21,119 |
2,811 |
27,862 |
52,672 |
|
Source: Company accounts, Edison Investment Research
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