Cairn Energy Plc – Value Analysis (LONDON:CNE) : December 21, 2017

Capitalcube gives Cairn Energy Plc a score of 57.

Our analysis is based on comparing Cairn Energy Plc with the following peers – Premier Oil plc, Ophir Energy plc, Rockhopper Exploration plc, Faroe Petroleum plc, Tullow Oil plc and JKX Oil & Gas plc (PMO-GB, OPHR-GB, RKH-GB, FPM-GB, TLW-GB and JKX-GB).

Investment Outlook

Cairn Energy Plc has a fundamental score of 57 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Taking peer performance into consideration, relative performance over the last month and last year is around the peer median.
  • It’s current Price/Book of 0.69 is about median in its peer group.
  • CNE-GB outperforms its peers with a relatively high operating performance and the market also expects faster growth relative to its peers
  • CNE-GB‘s relatively high profit margins are burdened by relative asset inefficiency.
  • Change in the company’s annual revenues seems to be coming at the expense of earnings.
  • Over the last five years, CNE-GB‘s return on assets has improved from below median to better than the median among its peers, suggesting that the company has improved its relative operations markedly.
  • The company’s median gross margin and relatively high pre-tax margins suggest non-differentiated product portfolio but with tight cost control relative to peers.
  • The company’s capital investment program suggests it is under-investing in a business that is producing peer median returns.
  • CNE-GB‘s operating performance may not allow it to raise additional debt.

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Leverage & Liquidity

CNE-GB would seem to have a hard time raising additional debt.

  • With debt at a relatively low 17.43% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 19.59%), and relatively tight interest coverage level of -7.38x, CNE-GB would have a hard time raising much additional debt. Thus, the company is classified as having Limited Flexibility when it comes to raising more debt.
  • Of the 6 chosen peers for the company, only 5 of the stocks have an outstanding debt balance. Companies with no debt include RKH-GB.

CNE-GB has maintained its Constrained profile from the prior year-end.

  • CNE-GB‘s interest coverage is its highest over the last four years and compares to a low of -287.63x in 2012.
  • Though its interest coverage increased to -7.38x from -25.48x (in 2015), its peer median remained relatively stable during this period at -0.54.
  • Interest coverage rose 17.99 points relative to peers.
  • CNE-GB‘s debt-EV is its highest over the last four years and compares to a low of 0% in 2015.
  • While its debt-EV increased to 17.43% from 0% (in 2015), its peer median decreased during this period to 19.59% from 45.76%.
  • Relative to peers, debt-EV rose 43.61 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Premier Oil plc 99.87 0.81 1.05 14.54
Ophir Energy plc 16.45 9.02 -0.85 50.84
Rockhopper Exploration plc 0 3.36 No interest exp 999
Faroe Petroleum plc 19.59 1.78 -2.16 254.26
Tullow Oil plc 64.32 1.7 1.27 15.46
JKX Oil & Gas plc 30.03 0.25 -0.54 -59.65
Cairn Energy Plc 17.43 1.34 -7.38 -33.34
Peer Median 19.59 1.7 -0.54 15.46
Best In Class 16.45 9.02 No interest exp 999

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Company Profile

Cairn Energy Plc is an independent oil and gas exploration and development company. It explores, discovers, develops and produces oil and gas assets globally. The company was founded by William Benjamin Bowring Gammell in 1980 and is headquartered in Edinburgh, the United Kingdom.

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