Sundance Energy Australia Ltd (SEA $0.375) Buy
| Date | Price Target |
| 28th/03/19 | $1.30/sh $1.40/sh |
Dec Q, FY’18 Earnings and 2019 Outlook
Investment Case Dec Q Financials highlight the latent impact and high quality of the Pioneer Live Oak acreage with the Company delivering a US$50m swing in H-on-H NPAT and US$75m turn-around in the 12mnths to Dec 31. Of greater promise was that the business generated an underlying profit even after the unrealised hedging gain. And though Dec Q and FY production was impacted by midstream bottlenecks, this issue was a consequence of outperformance of the Live Oak acreage. We maintain that the 2018 Pioneer acquisition has fundamentally upgraded the SEA portfolio and investment thesis. High net debt remains the sticking point whilst oil prices and the global economic macro remain fragile. Therefore, SEA is not without its longer term risks but – acknowledging our bullish stance on oil price fundamentals – we retain our Buy call. Key Points ·Dec Q’ly US Regulatory Financials confirmed the ASX release in terms of production: oCY’18 exit – 15,732boepd; oDec Q – 14,170boepd (inc. ~1,500boepd flared gas); oFY’18 – 10,333boepd (inc. 700boepd flared gas); ·FY’18 EBITDA of US$100m was slightly ahead of our US$95m forecast last published; ·Whilst the net loss of $28.1m was well ahead our US$78m loss estimate due to largely to an unrealised hedging gain of US$40.2m; ·Revenues, opex and D&A were otherwise largely in-line; ·Dec Q was impacted by midstream gas compression capacity resulting in up to 2,000boepd curtailed capacity through the Q and into the Mar Q; ·This will rectified by late April and to the account of the midstream operator, Enterprise; ·CY’19 Guidance was recently tabled net of the held for sale Dimmit EF interests: oDrilling - 25 net wells largely Dec H weighted awaiting capacity constraint issues to be resolved; oCapex – US$135-155m; oMar Q Production – 11,500-12,500boepd; oFull YR 2019 Sales Production – 14,000-15,000boepd; oEBITDA guidance at strip – US$165-180m; ·Dimmit acreage sale process is on-going with the asset held for sale on the Balance Sheet for US$24m; ·Associated production and earnings have been removed by the Company for 2019 guidance purposes. We have retained them in our forecasts until a deal closes. ·Buy maintained. We have adjusted Valuation for the lower Held-for-sale Dimmit valuation of US$24m (prev. $40m). ·We bring our Price Target of $1.30/sh (prev. $1.40/sh) in-line with the resulting $.128/sh Valuation; ·Buy as we maintain a bullish outlook for oil prices over the medium to long term and view that the Dec Q Financials show clear signs of the fundamental value of the Pioneer assets acquired 12mnths ago. | 
