finnCap Research Company Notes - 15 October 2018

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Sector: Energy

President Energy (PPC): Activity ramping into 2019

Key data                              

• Share price (p): 8.1
• Target price (p): 18.0
• Market cap (£m): 88.0
• Enterprise value (£m): 101.0

President’s diary for 2019 is filling up! This latest acquisition in Louisiana has the potential to generate rapid cash flow at low cost/risk in 2019. While not needle moving by itself, it comes on top of new development drilling, gas reactivation and the expected acquisition of two additional concessions in Argentina, plus a return to exploration drilling in both Argentina and Paraguay in 2019. President is now pursuing growth on multiple fronts from a position of cash flow strength.

Independent Oil & Gas (IOG): Goddard resource base confirmed

Key data                              

• Share price (p): 30.5
• Target price (p): 72.0
• Market cap (£m): 38.6
• Enterprise value (£m): 62.5

Robert Goddard is credited with building the first liquid-fuelled rocked. While the Goddard discovery was not named after him, it could still live up to its namesake and turbo charge IOG’s hub development strategy. This project materially boosts IOG’s resource base and complements its planned Southern North Sea gas development hubs. The newly published CPR confirms management’s view of Goddard’s resource base and is consistent with our current modelling. However, factoring in a higher development chance of success, in line with management estimates, raises our risked NAV, and price target, by 12% to 72p/sh.

Jonathan Wright | jwright@finncap.com

Sector: Consumer & Other

Shoe Zone (SHOE): Pre-close = Profit surprise, strong cash generation + special

Key data                              

• Share price (p): 164.5
• Target price (p): 210.0
• Market cap (£m): 82.3
• Enterprise value (£m): 77.6

Today’s strong FY18 pre-close trading update represents a positive profit surprise. We therefore increase our FY18 PBT forecast by +9% to £11m. The roll out of Big Box and strong progress in online sales underpin the medium-term growth profile, backed by SHOE’s strong balance sheet. Cash conversion remained strong, with net cash at £15.7m at the year-end, with SHOE therefore anticipating to announce an 8.0p special dividend (although we do not explicitly forecast it at this stage), or £4m of excess cash. SHOE’s operational and financial performance in FY18 is even more noteworthy given the raft of profit warnings reported elsewhere in the UK clothing/footwear sector over the past two months. It is difficult for any retailer to stand apart from the turbulence affecting the sector at present, but the combination of SHOE’s strong performance, low valuation and appealing dividend yield (6.9% on the ordinary) make it look a particularly attractive investment, in our view.

Peter Smedley | psmedley@finncap.com

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