Marketing Communication
Your Capital is at Risk
23 April 2020
Stock Data
Share Price: 1.15p
Sound Energy plc
The Moroccan focused upstream oil and gas company has announced its audited final results
Market Cap.: £13.3m
for the year ended 31 December 2019. These highlight a period during which SOU’s Board
Shares in issue: 1,156m
successfully faced up to numerous challenges, as a result of which it effected a programme of
Company Profile
structural cost reduction and explored options on monetising its Eastern Moroccan Portfolio,
Sector: Oil, Gas and Coal
which presently remains ongoing. While the more recent COVID-19 Pandemic is not expected
Ticker: SOU
to significantly alter the anticipated schedule or broad economics of TE-5 Horst’s full field
Exchange: AIM development, nearer-term it could possibly impose some delay on the Group’s micro-LNG
Activities (‘mLNG’) implementation. Given the expectation that this strategy was considered capable of
Sound Energy (‘SOU, ‘the Group’) is a Moroccan generating relatively short-term positive cash flow, sufficient to bolster its relatively weak
exploration company focused onshore gas with a balance sheet while also providing funding to continue limited higher risk exploration drilling,
low cost 0.65 Tcf discovery (TE-5 Horst). It has this could be unfortunate. Measures announced by the UK Chancellor to support businesses
supportive cornerstone investors, multiple
impacted by the Pandemic could potentially provide some financial relief, while opportunity
strategic partners and a regional gas strategy that
is underpinned by strong demand and local for near-term partial sale of its Eastern Morocco portfolio also remains notwithstanding which,
pricing. the Group’s cashflow forecast for the 12-months to end-April 2021 indicates that additional
funding will be required to enable it to meet its forward obligations.
Website: www.soundenergyplc.com
Having seen SOU undertake two modest equity placings in the past 10 months, investors are
1-Year Share Price Performance already clear regarding the Group’s need to strengthen its balance sheet. Post its structural
reduction, TPI estimates SOU presently has a continuing cash burn of c.£0.5m/month, which
suggests a runway that goes no further than its December 2020 year end. Yet the fact that the
Group’s share price remains marginally higher than the levels being achieved five weeks ago,
reflects the belief that the COVID-19 Pandemic is unlikely to undermine its central business
plan to complete TE-5 Horst’s full field development and commercialisation, while continuing
regulatory/planning/environmental development progressively reduces its risk profile.
Source: LSE
The Group’s full year 2019 results themselves held few surprises. The loss for the year before
Note: Past performance is not an indication of tax from continuing operations was £16.4 million (2018: £11.7 million); exploration costs of
future performance.
£6.6 million (2018: £4.1 million) were related to the impairment charge of TE-10 drilling and
Turner Pope contact details
well test costs given that it failed to achieve a commercial gas flow rate. Administrative costs
Turner Pope Investments (‘TPI’) Limited
at £6.1 million were lower than the 2018 figure of £8.9 million due to the structural cost
8 Frederick’s Place
London reduction initiative taken during the year which included staff reduction. As at 31 December
EC2R 8AB 2019, the Group’s carrying amount of property, plant and equipment was £147.3 million (2018:
Tel: 0203 657 0050 £151.0 million) primarily related to the development and production assets in Morocco with a
Email: [email protected] carrying amount of £146.9 million (2018: £150.6 million) after taking account of additions and
Web: www.turnerpope.com foreign exchange movement. Its period-end cash balance was £4.6 million, while an equity
Attention is drawn to the disclaimers and risk placing priced to 2 pence/share completed in January 2020 added a further £1.5 million (gross).
warnings at the end of this document.
This is a non-independent marketing
Prudent modelling of SOU’s discovery alone suggests considerable value is being created
communication. The analyst who has prepared this as it inexorably moves toward commencing full field development. Interest in the Group’s
report is aware that TPI has a relationship with the surrounding licence areas should also magnify once the Concession demonstrates
company covered in this report. Accordingly, it has
not been prepared in accordance with legal meaningful production. Against the near-term background of exceptional plummeting oil
requirements designed to promote the independence and gas prices, which in any case is expected to have somewhat corrected before TE-5
of investment research and is not subject to any
Horst’s commecialisation, SOU’s profitability remains dependent more on regional gas
prohibition on dealing ahead of the dissemination of
investment research. pricing mechanisms than international spot and so provides it with a significant degree of
Retail clients (as defined by the rules of the FCA) protection from such volatility. Industry standard DCF10% analysis for the prospect has
must not rely on this document. been based on highly prudent farm-down assumptions and a certified mid-case original
Barry Gibb gas in place (‘OGIP’) of 0.65Tcf, leading to clean output of 66MMscf/d commencing
Research Analyst Q3’2022E and sustained for 10 full years thereafter. This indicates a Project post-tax
Tel: 0203 657 0050
[email protected]
NPV10% of US$587m, and a project IRR of 44%. TPI has assumed SOU holds just a (post-
deal) 23.3% WI (compared with 47.5% presently) which, after adjusting for estimated
Andrew Thacker
Corporate Broking & Sales
current net debt of £18.4m, derives a valuation of 7.5p/share, although successful
Tel: 0203 657 0050 negotiation that results in lower dilution, commencement of mLNG extraction and/or
[email protected] further exploration success offers significant upside potential. As TPI detailed in its SOU
Zoe Alexander initiation research released in March 2020, while as much as a year’s slippage of the
Corporate Broking & Sales Group’s original development timetable might be foreseen and notwithstanding its
Tel: 0203 657 0050
[email protected]
relatively modest short-term funding needs, the share price still appears to belie the true
scale of the opportunity presented in this highly prospective, virgin territory.
1
Marketing Communication
Your Capital is at Risk
23 April 2020
THIS DOCUMENT IS NOT FOR PUBLICATION, DISTRIBUTION OR TRANSMISSION INTO THE UNITED STATES OF
AMERICA, JAPAN, CANADA OR AUSTRALIA.
Conflicts
This is a non-independent marketing communication under the rules of the Financial Conduct Authority (“FCA”). The analyst
who has prepared this report is aware that Turner Pope Investments (TPI) Limited (“TPI”) has a relationship with the company
covered in this report. Accordingly, the report has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is not subject to any prohibition on dealing by TPI or its clients ahead
of the dissemination of investment research.
TPI manages its conflicts in accordance with its conflict management policy. For example, TPI may provide services (including
corporate finance advice) where the flow of information is restricted by a Chinese wall. Accordingly, information may be
available to TPI that is not reflected in this document. TPI may have acted upon or used research recommendations before
they have been published.
Risk Warnings
Retail clients (as defined by the rules of the FCA) must not rely on this document.
Any opinions expressed in this document are those of TPI’s research analyst. Any forecast or valuation given in this document
is the theoretical result of a study of a range of possible outcomes and is not a forecast of a likely outcome or share price.
The value of securities, particularly those of smaller companies, can fall as well as rise and may be subject to large and sudden
swings. In addition, the level of marketability of smaller company securities may result in significant trading spreads and
sometimes may lead to difficulties in opening and/or closing positions. Past performance is not necessarily a guide to future
performance and forecasts are not a reliable indicator of future results.
AIM is a market designed primarily for emerging or smaller companies and the rules of this market are less demanding than
those of the Official List of the UK Listing Authority; consequently AIM investments may not be suitable for some investors.
Liquidity may be lower and hence some investments may be harder to realise.
Specific disclaimers
TPI acts as sole broker to Sound Energy plc which is listed on the AIM Market of the London Stock Exchange (’AIM’). TPI’s
private and institutional clients may hold, subscribe for or buy or sell Sound Energy’s securities.
Opinions and estimates in this document are entirely those of TPI as part of its internal research activity. TPI has no authority
whatsoever to make any representation or warranty on behalf of Sound Energy.
2
Marketing Communication
Your Capital is at Risk
23 April 2020
General disclaimers
This document, which presents the views of TPI’s research analyst, cannot be regarded as “investment research” in accordance
with the FCA definition. The contents are based upon sources of information believed to be reliable but no warranty or
representation, express or implied, is given as to their accuracy or completeness. Any opinion reflects TPI’s judgement at the
date of publication and neither TPI nor any of its directors or employees accepts any responsibility in respect of the information
or recommendations contained herein which, moreover, are subject to change without notice. Any forecast or valuation given
in this document is the theoretical result of a study of a range of possible outcomes and is not a forecast of a likely outcome or
share price. TPI does not undertake to provide updates to any opinions or views expressed in this document. TPI accepts no
liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents
or otherwise arising in connection with this document (except in respect of wilful default and to the extent that any such
liability cannot be excluded by applicable law).
The information in this document is published solely for information purposes and is not to be construed as a solicitation or an
offer to buy or sell any securities or related financial instruments. The material contained in the document is general
information intended for recipients who understand the risks associated with equity investment in smaller companies. It does
not constitute a personal recommendation as defined by the FCA or take into account the particular investment objectives,
financial situation or needs of individual investors nor provide any indication as to whether an investment, a course of action
or the associated risks are suitable for the recipient.
This document is approved and issued by TPI for publication only to UK persons who are authorised persons under the
Financial Services and Markets Act 2000 and to professional clients, as defined by Directive 2004/39/EC as set out in the rules
of the Financial Conduct Authority. This document may not be published, distributed or transmitted to persons in the United
States of America, Japan, Canada or Australia. This document may not be copied or reproduced or re-distributed to any other
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