Long
Rockrose Energy (RRE) - Long-Term ISA Investment Proposal
Sector: - Energy
How Did I Come Across It: - Basically the forums and it was recently the most popular pick for 2020 stocks in a Stockopedia competition.
Background: - Incorporated Jul 2015, public listed Jan 2016. Rockrose Energy PLC is a United Kingdom-based oil and gas production and infrastructure company. The Company focuses on onshore and offshore production opportunities and infrastructure projects. Its subsidiaries include Marathon Oil U.K. LLC and Marathon Oil West of Shetland Limited.
RRE buys old fields that are not economically wanted by the big Oil companies, this doesn’t mean that they are no longer profitable though. So, RRE is taking on the decommissioning obligations too
Decommissioning, as of 31 March 2019, total decommissioning obligations were estimated at £456.9m for UK assets and €115.8m in respect of Dutch assets (on a post-tax basis). Market Cap is £292M, so buyer beware.
Ratios: - Share price has risen 220% in the last 12 months. The PE is 2.3 based on future earnings, but a more sober 7 on trailing 12 months. Only one dividend Oct 2019 at 2.6% yield and div cover of a sensible 4.29 times. Operating margins are 15% which is good for the industry.
Rough Technical: - Since the good financial reports of Jul 2019 the share has been trading in the £17-£20 range. Support is around £16.80 and resistance was £20. However, since the 14th January 2020 when it was posted as the most favoured share to rise in the Stockopedia competition (stockopedia dot com/challenge/top-picks/), it has broken this resistance line. Trading volumes weren’t huge but it was a maintained demand over a few days.
Liquidity of Shares: - Average volume for the shares was 56K over three months, this is below my personal liquidity trap value of 120K: though there is demand now.
39% of the allotted shares are in the open market with holders below 5% holding. The Directors have skin in the game holding 33% of the shares and various funds holding a further 28%.
Brokers Opinion: - Two brokers have the share as a buy Hannam and Cantor Fitgerald. Target price is £39.34, which is very interesting.
Spread: - around 45bps
Accounts: - it’s a young company so not a lot of track record. Turnover this year should be 20% up on prior and profits up 28% from analysts’ forecasts. Cash flow – it is cash generating and this is being used to finance new purchases (though be aware of the decommissioning costs), so in the growth phase, not a lot to go on apart from no debt. Balance Sheet is presently £546M (£360M 2017). Overall the numbers look good, though the Z-score is classed as cautious.
Main Risks: -
*The share price has been very frothy of late, the trailing 12 month PE is a sensible 7-9 depending on which figures you use.
*Decommissioning costs in excess of the market capital and the asset values.
Main Favourables: - The forecasted PE of 2.3 on forecasted 2020 earnings. No debt.
Declarations: - No interest in the share at the moment, though I am proposing the add it to my ISA long-term, but I am waiting for the short-term speculators to move on first and feel an entry price of £17 is my safest bet, so that I am not buying due to fear of missing out on a bargain. A similar stock to compare RRE to is EnQuest (ENQ) which compares favourably as an alternative.
As always I am still learning the technicals side and I am always open to discussion regarding entry points etc..
How Did I Come Across It: - Basically the forums and it was recently the most popular pick for 2020 stocks in a Stockopedia competition.
Background: - Incorporated Jul 2015, public listed Jan 2016. Rockrose Energy PLC is a United Kingdom-based oil and gas production and infrastructure company. The Company focuses on onshore and offshore production opportunities and infrastructure projects. Its subsidiaries include Marathon Oil U.K. LLC and Marathon Oil West of Shetland Limited.
RRE buys old fields that are not economically wanted by the big Oil companies, this doesn’t mean that they are no longer profitable though. So, RRE is taking on the decommissioning obligations too
Decommissioning, as of 31 March 2019, total decommissioning obligations were estimated at £456.9m for UK assets and €115.8m in respect of Dutch assets (on a post-tax basis). Market Cap is £292M, so buyer beware.
Ratios: - Share price has risen 220% in the last 12 months. The PE is 2.3 based on future earnings, but a more sober 7 on trailing 12 months. Only one dividend Oct 2019 at 2.6% yield and div cover of a sensible 4.29 times. Operating margins are 15% which is good for the industry.
Rough Technical: - Since the good financial reports of Jul 2019 the share has been trading in the £17-£20 range. Support is around £16.80 and resistance was £20. However, since the 14th January 2020 when it was posted as the most favoured share to rise in the Stockopedia competition (stockopedia dot com/challenge/top-picks/), it has broken this resistance line. Trading volumes weren’t huge but it was a maintained demand over a few days.
Liquidity of Shares: - Average volume for the shares was 56K over three months, this is below my personal liquidity trap value of 120K: though there is demand now.
39% of the allotted shares are in the open market with holders below 5% holding. The Directors have skin in the game holding 33% of the shares and various funds holding a further 28%.
Brokers Opinion: - Two brokers have the share as a buy Hannam and Cantor Fitgerald. Target price is £39.34, which is very interesting.
Spread: - around 45bps
Accounts: - it’s a young company so not a lot of track record. Turnover this year should be 20% up on prior and profits up 28% from analysts’ forecasts. Cash flow – it is cash generating and this is being used to finance new purchases (though be aware of the decommissioning costs), so in the growth phase, not a lot to go on apart from no debt. Balance Sheet is presently £546M (£360M 2017). Overall the numbers look good, though the Z-score is classed as cautious.
Main Risks: -
*The share price has been very frothy of late, the trailing 12 month PE is a sensible 7-9 depending on which figures you use.
*Decommissioning costs in excess of the market capital and the asset values.
Main Favourables: - The forecasted PE of 2.3 on forecasted 2020 earnings. No debt.
Declarations: - No interest in the share at the moment, though I am proposing the add it to my ISA long-term, but I am waiting for the short-term speculators to move on first and feel an entry price of £17 is my safest bet, so that I am not buying due to fear of missing out on a bargain. A similar stock to compare RRE to is EnQuest (ENQ) which compares favourably as an alternative.
As always I am still learning the technicals side and I am always open to discussion regarding entry points etc..
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