LGO Energy - Half-year Report
Companies: LGO ENERGY PLC
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|06/10/2016 15:24:18||London Stock Exchange||Holding(s) in Company|
|04/10/2016 11:45:34||London Stock Exchange||Webinar, Friday 7 October|
|30/09/2016 17:15:49||London Stock Exchange||Total Voting Rights|
|29/09/2016 10:01:36||London Stock Exchange||Holding(s) in Company|
|28/09/2016 07:00:07||London Stock Exchange||Half-year Report|
|27/09/2016 07:00:05||London Stock Exchange||Additional Recompletion Wells GY-668 and GY-288|
|23/09/2016 11:28:57||London Stock Exchange||Placing and TVR|
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Rockhopper (RKH) holds a material stake in the major discoveries in the Falklands. The Sea Lion complex holds 517mmboe of 2C contingent resource (900mmboe 3C), while the Isobel Elaine complex could be a similar magnitude (according to management estimates). This resource base (over which RKH holds a >50% working interest) is significant on a global scale and commercially attractive given the cost reductions achieved through the FEED process so far – the project is NPV10 break-even at $45/bbl. Although the timing of project sanction is uncertain (particularly given the financial constraints of its partner PMO), the fiscal regime and resource base makes this a compelling long-term project. Our revised core NAV is 74p/share.
In January we screened for companies with estimates that had been declining consistently since a year previously, but which had risen in the immediately preceding three months (see our note dated 22 January 2016). We have reviewed the performance of those companies and, given the overall strength of this selection, we have re-run the screen. In the c.3 months since selection, the unweighted average rise was c.34% against a c.11% rise in the main All-Share index. From the same universe as before (some 900 companies) we find 38 companies selected by the screen. We note a number of stocks in the list where we have a supportive stance including: Devro (DVO LN, Buy), James Fisher (FSJ LN, Corporate), Mattioli Woods (MTW LN, Buy) and Spirent Communications (SPT LN, Buy).
Since its inception in 2010, the Conviction List has outperformed the market in 13 of 18 periods and a reinvested Conviction List would have returned 255% against a Small Companies index that would have returned 130%. Our Conviction List returned 3.7% over the last quarter; this was set against the benchmark UK Small Companies index that returned 11.3% over the same period. Our Q4 portfolio reflects our outlook for a temporary sweet spot for UK growth during the second half of 2016. The downside risk from the uncertainty of the EU Referendum result has been countered by stimulus from the Bank of England, signs of a looser fiscal stance and an 18% YoY reduction in the Sterling Exchange Rate. Compressed corporate fixed income spreads continue to provide a valuation underpin for global equities.
Atalaya Mining recently released operating and financial results for the first half of 2016. The plant expansion project at its flagship Rio Tinto mine in Spain was completed in May, ahead of schedule and below budget. Production is now ramping up, with nameplate throughput equivalent to 9.5 million tonnes per year expected before the end of 2016. The mine is now into its third operating quarter and has issued guidance for the rest of the year; we have incorporated this into our model. We have slightly increased our price target to 209p, reflecting these changes and also positive exchange rate moves. We retain our Buy recommendation.