Egdon Resources#: Interim Results H1 FY 2020
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Interim Results H1 FY 2020
Egdon Resources (AIM:EDR)# interim results highlight the achievement of key milestones during H1 FY 2020, however, financial results were impacted by a decline in gas pricing despite production increasing 8.5% YoY to an average 178boepd. This meant that revenue was down 44% YoY to £0.68m. In addition to the weaker top line and as a result of impairment charges totalling £2.2m owing to weak commodity pricing the net loss increased from £0.72m to £3.24m. Capex of £0.47m was lower YoY and EDR remained debt free at the end of the period with £0.8m in cash. This cash position was supported by a recent fundraise of £0.5m post period end.
Near-Term Conventional Focus
Given the major headwinds of energy pricing and the impact of lockdown EDR has naturally adopted appropriate measures to ensure operations can continue along with cost cutting. However, management continues to progress development of the business with the approval of Wressle and the farmout agreement with Shell (RDSB LN) at Resolution during the period.
Wressle will add 150bopd to group production in FY 2021 and recent analysis highlighted a breakeven price of US$17.62/bbl. Biscathorpe is likely the next in line for development of EDR’s conventional assets which again highlights the low cost base of the company’s development portfolio with a breakeven price of US$18.1/bbl. EDR is therefore focussed on strengthening its production base with low cost, low risk assets; this value potential is not reflected in the shares currently. At Resolution with costs largely carried by RDSB and EDR maintaining a material stake there is significant potential for value creation as the asset is derisked and the involvement of a supermajor is a clear validation of the asset quality.
Recommendation and Target Price
With catalysts coming up from the conventional side of EDR’s portfolio and having strengthened its position we believe the company is able to weather the current challenging environment whilst advancing its attractive and diversified portfolio of assets.
We reiterate our Buy recommendation and target price of 35.8p.