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Northland Capital Partners View on the City : Europa Oil & Gas, DiamondCorp, Allocate Software

OIL & GAS: Europa Oil & Gas - LON:EOG

PLANNING GRANTED FOR WRESSLE-1 WELL

  • Operator Egdon Resources (25% working interest), has received planning for the Wressle 1 exploration well in PEDL 180, Lincolnshire.
  • Europa Oil and Gas has a 33.34% interest, Energie Petroleum 33.33% interest and Union Jack Oil an 8.33% interest in the well.
  • Drilling operations are expected to commence in the second half of 2013 and likely to be the first half of FY14 for Europa with its July year end.

 


NORTHLAND UK VIEW: The Wressle-1 well will target the Brigg Broughton anticline extending through PEDL 180, 182 and 241 and host to several oil discoveries including the Crosby Warren oil field operated by Europa. Egdon estimates that Wressle could hold mean gross unrisked prospective resources of 2.1 million barrels of oil (c.700k bbls net to Europa). The well is considered around a 1 in 3 prospect, will target multiple prospective sandstone reservoirs in a ‘structurally favourable position’ near the crest of the structure and be deviated to a TD of c. 2,300 metres. We value the UK exploration portfolio at a risked valuation of c. £3m with an upside case of £24m (pending a successful Holmwood planning reversal). Wressle is a relatively small prospect but has the potential to dramatically enhance near term cashflows given the UK’s small field allowance and the relatively low capex requirement for the well (we estimate net c. £700k). There is the potential to generate cashflow up to £25m/around $50/bbl, though even a more modest contribution would help shore up Europa’s cash flow producing UK operation.


LACE MINE UPDATE: TAILINGS RETREATMENT TO COMMENCE NEXT WEEK

  • Treatment plant modifications completed on schedule and within budget.
  • Plant commissioning underway with tailings retreatment to begin next week.
  • First sale of diamonds expected to be September/October 2013.
  • Underground development work largely on schedule and under budget.
  • No change to price target or forecasts.

NORTHLAND UK VIEW: The completion of the modification of the tailings plant and the commencement of retreatment are significant steps forward for DiamondCorp. The Company expects retreatment of the tailings to commence next week and we forecast that around 300,000t of tailings will be treated with the Company recovering around 15,000cts, with the funds generated to be treated as a credit to capex. Next year, we expect the Company to treat around 600,000t of tailings recovering 30,000cts. With the underground development largely on schedule, we forecast that around 28,000cts will be produced from the development excavations in 2014, making a total of 58,000cts recovered during the year. The development of the box cut is three weeks behind schedule due to encountering more competent ground earlier than expected but as the box cut is not on the critical path it is not expected to cause a delay to the overall development schedule. DiamondCorp is fully funded to take the Lace Mine to production and there is now only a limited risk of equity dilution to existing shareholders as the project is moved to production. The pre-Run of Mine (ROM) production 2013-2015 is expected to result in the recovery and sale of around 300,000cts, worth around USD$42m (£27m), double DiamondCorp’s current market cap, before the mine begins ROM production in late 2015.


TRADING UPDATE: IN LINE PROFITS, BETTER CASH

  • Very strong H2 performance with FY results in line with expectation at the revenue and EBITA line. Cash conversion materially better than forecast with ongoing transition to more recurring revenue and better working capital management.
  • Healthcare business secured sales for new products and with new customers. UK Healthcare bookings ahead of revenue with the number of recurring orders secured higher than anticipated. As a result, cash, deferred revenue and contracted, unbilled orders in hand are higher. This will boost revenue visibility. 
  • Number of new HealthRoster customers down slightly on FY12 but in line with expectations. Some competitive wins and 100% renewal rate. Successful launch of V10 and migration of customers ongoing.
  • Allocate Cloud, launched in July, exceeded management expectation. This has also benefited cash. 
  • Medics business benefited from a number of multiyear renewals as well as new customers.
  • Defence and Maritime businesses in line.
  • Audited results will be announced in the w/c 22nd July.

NORTHLAND UK VIEW:  Positive pre-close trading statement and with the shift to recurring revenue through multi-year support contracts and Cloud, revenue visibility should have been enhanced. The shift to the recurring model tends to mask growth dynamics in the short term and the comparator year benefited from a large order in FY12, the cash performance
points to a good trajectory. Trading on 13.2x FY13 and 10.2x FY14, undemanding in the sector. 



DISCLOSURES

 

 

 

Issuer

TICKER

APPLICABLE DISCLOSURES

Europa Oil & Gas

EOG.L

-

Diamond Corp

DCP.L

-

Allocate Software

ALL.L

7


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