Genel Energy PLC (LON: GENL)  

Genel Energy PLC (LON: GENL) is a low-cost and low-carbon oil producer with licences in the Kurdistan Region of Iraq. Moreover, the Company operates through wholly owned subsidiaries and is comprised of two business segments: Production and Pre-production.

Recent Dividend Payments

GENL had paid an interim dividend of 6.0 US cents per share attributable for H1 FY21 on 10 December 2021 with an ex-dividend date of 11 November 2021. In comparison, the Company had paid an interim dividend of 5.0 US cents per share for H1 FY20. Thus, the interim dividend growth came out to be around 20%.

Growth Prospects (also covers trading update released on 18 January 2022)

• Improvement in Net Cash Position: The Company’s net cash position witnessed a significant improvement from USD 10 million as of 31 December 2020 to USD 44 million at the end of FY21.
• Favourable Industry Dynamics: The brent crude price breached USD 110 per barrel on 02 March 2022, although it has been agreed to release 60 million barrels of crude reserves to restrain price increases.
• Strategic Priorities: The commercialisation of Sarta and the successful farm-out on Somaliland licence remained the key priorities for 2022.

Key Risks

• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Record UK Inflation: The annual rate of UK consumer price inflation reached 5.5% in January 2022, the highest since March 1992. Thus, it can adversely impact the London equities.
• Decline in Oil Reserves: The Company had reported a significant decline in oil reserves at the end of 2021 when compared with 2020 levels.

Key Fundamental Statistics & Shareholding Pattern of Genel Energy PLC.  

Bilgin Grup Dogal Gaz Anonim Sirketi is the most significant shareholder as it holds nearly 62.52 million shares as of 31 December 2021.      

H1 FY21 Financial Highlights (for the six months period ended 30 June 2021, as on 03 August 2021)

(Source: Company Filings)

• Net Production: The Company witnessed a marginal increase in net production from 32,100 bopd for H1 FY20 to 32,760 bopd for H1 FY21.
• Net Debt: Meanwhile, GENL had reported a net debt of USD 2.20 million as of 30 June 2021.
• Top-Line Business: Driven by a surge in Brent oil price during H1 FY21, the revenue rose to USD 151.50 million during the period.

Financial Ratios (H1 FY21)

Share Price Performance Analysis 

(Source: Refinitiv; Analysis done by Kalkine Group)

On 02 March 2022, at 08:18 AM GMT, GENL’s shares were trading at GBX 141.80, up by around 3.05% from the previous day closing price. Stock 52-week High and Low were GBX 194.80 and GBX 113.85, respectively.

From a technical standpoint, the stock price is hovering above the 50-days simple moving average of GBX 140.67, indicating a bullish price momentum.

Valuation Methodology: Price/Earnings Approach (FY22E)  

Business Outlook

The Company has produced strong FY21 performance and generated a significant free cash flow of USD 86 million. Moreover, the Company had anticipated generating free cash flow of up to USD 200 million in 2022 at a Brent oil price of USD 75/bbl. Meanwhile, the Russia-Ukraine geopolitical tension has boosted the oil price and can further enhance the free cash flow projections. With regards to the Capital Expenditure, GENL expects it to remain between USD 140 million and USD 180 million for FY22. Furthermore, the Company expected FY22 production to be around the same level as FY21. In a nutshell, the Company aims to generate significant returns for the shareholders driven by strong oil price and consistent dividend payments.

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong oil price, strong growth in interim dividend payments, decent free cash flow guidance for FY22, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Genel Energy PLC at the current market price of GBX 141.80 (as of 02 March 2022 at 08:18 AM GMT), with lower-double digit upside potential based on 5.10x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference GENL in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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