Malcy's rose tinted view17 May 2019 13:28
Unexpected news from SDX this morning as the company reduces guidance and parts company with its CEO. Q1 production was 3,715 boe/d, up 22% on the equivalent quarter last year but 5% down on Q1 due to an increased water cut at NW Gemsa which is still declining. Work on the CPF at South Disouq continued in the quarter but first gas is now expect in 4Q 2019.
The company has ‘robust’ operating cash flow of $7m after spending $13m on capex in the period so SDX is still in a strong position. It leaves them with cash of $11m at 31/3/19 and with the $10m EBRD facility undrawn. The company has brought down sales guidance for Morocco to 6.0-6.5 MMscf/d (from 9-11) citing fewer new customers and one existing client scaling down usage which is the only disappointing number, should it manifest itself. Accordingly CEO Paul Welch has fallen on his sword which will appease those who have been-correctly- bearish on the shares but I am confident that particularly ironically in Morocco there is solid business for the longer term and that this guidance change may have been on the conservative side.
Where does that leave SDX? Mark Reid who has taken over as interim CEO will do an excellent job, he is one of the best CFO’s in the sector and could certainly step up for as long as is needed and the rest of the team is first rate. The shares have fallen a long way even before today and whilst there will be understandable short term concern, a business such as this with a market cap of only around £50m seems to be potentially very good value.
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