Vermilion Energy Inc.

Vermilion Energy Inc. (TSX: VET) is an integrated oil and gas producing company and operates in full-cycle exploration and production programs, which includes acquisition, exploration, development, and optimization of assets. The Company derives its revenue from the production and sale of petroleum and natural gas. The group has operations across North America, Europe, and Australia.

Management update: The Management has announced the appointment of Lorenzo Donadeo as its Executive Chairman. The Board announced that Curtis Hicks is rejoining the Company and has been appointed President. Anthony Marino resigned from the post of President, Director and Chief Executive Officer.

The Management has suspended the distribution of monthly dividend, in order to maintain liquidity.

Guidance: For FY20, the group expects total production of 94,000 boe/day to 98,000 boe/day while capital expenditure for FY20 is expected within the range of CAD 350 million to CAD 370 million.

Q1FY20 Financial Highlights: VET declared its quarterly results, wherein the Company reported total revenue of CAD 353.29 million, lower than CAD 467.24 million in the previous corresponding period. During the period, the group reported total production of 97,154 boe/day, lower than 103,404 boe/day in pcp but more or less flat compared to the previous quarter. Loss before income taxes stood at CAD 1,566.21 million, as compared to earnings of CAD 80.64 million in pcp. The downfall was primarily the inclusion of impairment expense of CAD1,564.85 million. The Companies net loss stood at CAD 1,318.5 million, against earnings of CAD 39.54 million in the previous corresponding period. Fund flows from operations stood lower at CAD 170.22 million, as compared to CAD 253.57 million in Q1FY19. During the quarter, Capital expenditures stood higher at CAD 233.70 million, as compared to CAD 253.57 million in the previous corresponding quarter. VET exited the quarter with cash and cash equivalents of CAD 16.63 million and total assets amounting to CAD 4,372.34 million.

Q1FY20 Income Statement Highlights (Source: Company Reports) 

Valuation Methodology: Price to CF Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Due to lower crude oil demand and falling commodity prices, most of the oil-producing companies are facing tremendous jolt and struggling with its top line. VET’s result was also hindered due to the changing macro environment and the inclusion of impairment expense. The stock slide ~76% in the last year, causing major destruction to the investor’s wealth. While in the recent past, the market witnessed a pullback rally in the crude-oil prices on account of an expectation in the recovery of demand as most of the Governments are easing the lockdown restrictions and paving ways to businesses to re-operate. Going forward, we anticipate an enhanced crude oil demand as the economy stabilizes and industrial activities would return to normal. During the last one month, the stock increase ~33%, outperforming the benchmark index ~27%. We have valued the stock using P/CF based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered Industry (Energy) Median multiple on NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 6.90 on May 25, 2020. 

VET Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Nighthawk Gold Corp.

Nighthawk Gold Corp. (TSX: NHK) is a Canada based resource company and operates in the identification, acquisition, exploration, and evaluation of gold properties. 

The Company temporary halted its exploration activities on its Indin Lake Gold Property and Colomac camp (from April 5, 2020) due to the COVID 19 pandemic.

Major Highlights at a Glance:

• During FY19, the Company completed 91 drillholes for a total of 35,018 metres of drilling. Drilling continued to intersect significant grade over broad true widths within high-grade Zone 1.5.
• Traced up to 500 metres in strike with a true width of 30 metres to 50 metres at shallow depths and progressively expands to upwards of 155 metres in true width at 800 metres vertical depth where it remains open.
• The Company is focusing on drilling activities and tested high-grade zones 1.5 and 3.5 further to depth. The Company is exploring for an additional high-grade domain within a 2-kilometre section of the Colomac Main sill between Zone 3.5 and the southern part of Zone 2.0. As per the initial drilling is concerned, the Zone 1.5 delivered an outstanding result, highlighted by its capacity to host exceptional gold grades.
• Before the temporary suspension of exploration activities, the Company completed a total of 2,598 metres of drilling activities in Q1FY20 which includes 1,065 metres at the Leta Arm Project, followed by 1,533 metres at Colomac.

Q1FY20 Financial Highlights: NHK is an exploration stage company and yet to report its revenue. For the period ended March 31, 2020, NHK reported a total expense of CAD 0.65 million, as compared to CAD 0.39 million in the previous corresponding period. The higher expense was aided by an increase in salaries, director and consulting fees, higher shareholder communication and marketing expenses followed by a significant rise in travel expense. Higher professional fee along with an increase in office and administration expense and regulatory expense resulted in higher expenses. Consequently, net loss and comprehensive loss for the period widened to CAD 1.05 million from CAD 0.22 million in pcp. The Group exited the quarter with cash and cash equivalent of CAD 7.58 million along with total assets of CAD 97.84 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of NHK corrected ~33% so far this year, amidst an elevated gold price. The company is engaged in several drilling activities of gold and yet to record its revenue. The group has reported several encouraging results from its latest drilling activities. The operations of the company are on a halt due to the restrictions imposed on account of ongoing COVID19 crisis, which might hinder its near-term drilling activities. Any positive results from the drilling activities would lead to an improved prospect for the company on a long-term basis. However, the company is yet to post the revenue and expenses are increasing. Further, the group’s drilling activities are on halt, and there is no clarity on when the work will resume. Based on the aforementioned facts, we prefer to remain on the sidelines. Hence, we recommend a ‘watch’ stance on the stock at the closing price of CAD 1.73 on May 25, 2020.

NHK Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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