Union Jack Oil plc (LON:UJO) is the topic of conversation when Shore Capital’s Craig Howie caught up with DirectorsTalk MD Darren Turgel.
Q1: Interim results for the six months to June 2022 now published, what are your thoughts on the results?
A1: We believe that these were a very creditable set of interims which confirmed a robust P&L and cash flow performance and financial position. Revenues in the period totalled £4.4m, translating into a very healthy maiden net profit of £2m. In the six months, the company generated £1m of operating cash flow and £0.5m of free cash flow, with the latter driving an increase in reported net cash to £6.5m. Cash balances, receivables and liquid investments in fact totalled around £10.5m as at yesterday. Overall, we consider the interim results to be excellent.
Q2: How do you see the company in terms of fair value?
A2: We continue to look forward to introducing comprehensive financial forecasts and a Risked NAV estimate once forthcoming technical reports on Wressle and West Newton become available soon. In the meantime, we would make a couple of key observations from a valuation perspective.
Firstly, Union Jack Oil’s reported cash balances, receivables and liquid investments equate to almost 25% of the prevailing market cap. We also believe that earnings in the six months provide an important reference point for valuation purposes – implying an annualised PE multiple of under 12x as at today. With reference to this undemanding rating, we therefore see in simple terms a prevailing share price that is very well underpinned by existing production alone (before material exploration, appraisal and development potential in the portfolio is accounted for).
Q3: How do you see the outlook for Union Jack Oil?
A3: We remain confident that they are a business which enjoys an extremely bright outlook – offering profitable, diversified exposure across the E&P value chain and scope for attractive shareholder distributions. The flagship Wressle development is clearly a very material producing asset enjoying excellent follow-on potential, in our opinion, and we foresee important re-rating catalysts including new technical assessments of both Wressle and West Newton – with an initial horizontal appraisal well planned at the latter location next year. Whilst the shares have enjoyed an excellent performance in the year-to-date (having now risen by circa 190% following a positive reaction today), we are confident that the company can maintain strong momentum given the positive outlook and our expectation of further material news flow in the short term and beyond.