Razor Energy Corp. (TSXV: RZE) is a Canada-based company, actively engaged in exploration,  development, production, and the acquisition of oil and Natural gas properties in Western Canada. 

Key highlights

• Operational update: On February 28, 2022, the company stated an increase of 20% in its Total Proved Reserves Volumes to 16,192 Mboe for FY21 as compared to 13,525 Mboe in FY20. The major increases were contributed by the developed producing reserves to 9,768 Mboe for the reported period vs 7,416 Mboe in the pcp. The recent acquisition of the Company’s existing non-operational site in Swan Hills Unit Not. 1, reinvigoration of non-operated and operated pipeline, and well reactivations, were the primary reasons for the increased total proved plus probable reserves valued at CAD 253.7 million for FY21 as compared to CAD 133.2 million in FY20.

• Improved cash balance: For Q3FY21, the group reported an increase in its cash & cash equivalent balance to CAD 3,952 million as compared to CAD 2,635 million in the pcp. The increased cash balance will help the company to carry out its expansionary plans and smooth running of its business operations.

• Improved Profitability margins: For Q3FY21 the EBITDA margin improved to 5.7% vs 4.4% in Q2FY21. The group reported a positive operating margin of 34.3% in Q3FY21 as compared to a negative operating margin of 37.0% in Q2FY21. The key notable transition was the positive Net income margins of 54.9% in Q3FY21 vs the negative net income (loss) margin of 37.0% in the previous quarter.  

Source: Refinitiv, Analysis by Kalkine Group  

Risks associated with investment

The group is exposed to volatility in the Oil prices, which could sway the revenues and profits of the company. Further, the operational risks such as exploration, compliance, rising wages, shortage of labor, etc are lingering on the company’s finances. 

 Financial overview of Q3FY21 (Expressed in thousands of CAD)

 Source: Company Filing

• The company reported an increase in the net revenue to CAD 17.60 million for the Q3FY21 as compared to CAD 13.0 million in the pcp.

• The total expenses decreased to CAD 11.71 million for the reported period vs CAD 17.25 million in Q3FY20. The decline in expenses was from a one-time gain on the business acquisition of CAD 12.12 million in the Q3FY21.

• The group stated its Net income of CAD 9.66 million for the reported period as compared to the net loss of CAD 1.83 million in the previous comparable period.

Stock recommendation 

The company reported a strong set of Net revenues and higher reserves in Q3FY21, which were primarily driven by the acquisition and nonoperational pipeline reactivations.  The group transitioned into the Net income of CAD 9.66 million in Q3FY21 from the net loss of  CAD 1.83 million in the pcp, which is a key positive for the company.  

Therefore, based on the above rationals, we recommend a “Watch” rating at the closing price of CAD 3.00 on March 18, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 18, 2022). Source: REFINITIV, Analysis by Kalkine Group

 Technical Analysis Summary

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Disclaimer

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