Could be promising15 Mar 2016 09:49
15 March 2016
Greka Drilling (GDL LN) – Increased China CBM subsidies
Add CP 3.7p
Key Points: Major Greka client Green Dragon Gas has announced that the Chinese government has announced a 50% increase in the subsidy for CBM producers – from US$0.87/mcf to US$1.31/mcf of gas produced. This is to be effective from 1 January 2016.
This pertains to Greka as it will increase cash flow for Green Dragon. Greka is currently drilling a 30 well lifabric programme for Green Dragon (13 of which had been completed by the end of 2016) and a further 110 are planned. The additional wells will require further funding for GDG, so if the company is receiving more cash on the back of its production then it should reduce this drilling funding requirement, and potentially bring forward more of the planned wells. This could hence result in more work for Greka, sooner, which would be very helpful.
Forecasts: No change.
Dec 2014A Sales US$24.4m, PBT (US$5.3m), EPS (1.4c)
Dec 2015E Sales US$25.8m, PBT (US$8.2m), EPS (2.1c)
Dec 2016E Sales US$35.6m, PBT US$0.7m, EPS 0.1c
Valuation: Current PER of 45.9x 2016. Global onshore drilling peer group generally expected to make a loss in 2016.
Conclusion: Greka continues to work on drilling up its contracts in China and India, with ongoing cost cuts expected to help compensate for limited activity in H1 2016. In Green Dragon, Greka continues to have a client that provides it with regular work and also significant potential should it decide to ramp up drilling activities. There is also significant potential to drill for third party clients in China and India, and were the company able to roll out its expertise to Europe and Australia it could be truly exciting for the stock. We have an Add recommendation.
Sign In
Follow the stocks
