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Sound: prove and sell

The Moroccan gas explorer's chief executive James Parson has one eye on a sale
March 23, 2018

Sound Energy (SOU) has a big year ahead. It could also be the Moroccan gas explorer’s last as a listed entity. “We are believers in the old-fashioned model,” chief executive James Parsons told us, explaining that, the outcome of 2018 drilling notwithstanding, “a corporate exit is quite likely”. Moroccan gas authorities' recent award of a gas exploration licence to Repsol and Shell points to the calibre of industry speculator.

IC TIP: Hold at 49p

Mr Parsons, himself a former Shell employee, expects “three rolls of the dice” this year. After the group completes its review of seismic data at Tendrara – which Sound believes could delineate more than 8 trillion cubic feet (tcf) of gas in place – a fully-carried field development plan with Schlumberger will drill three wells between July and the end of the year. The first two of these, TE-9 and TE-10, will target geological structures with top-range gas estimates of 1.2tcf and 5tcf, respectively.

Meanwhile, the group is hiving off its Italian assets into Saffron Energy (SRON), which will be ‘relaunched’ as Coro Energy under the stewardship of James Menzies, who founded and later sold Salamander Energy for $850m (£601m). Management pedigree aside, it is unclear to us whether Sound investors will relish the proposed distribution of Saffron shares, and their exposure to a portfolio that includes the failed Badile well.

On average, analysts expect an adjusted pre-tax loss of £10.8m and a loss per share of 1p in 2018, versus forecasts for losses of £29.6m and 4p in 2017.

SOUND ENERGY (SOU)  
ORD PRICE:49pMARKET VALUE:£498m
TOUCH:47-49p12-MONTH HIGH:87pLOW: 39p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:17p*NET CASH:£2.6m
Year to 31 DecTurnover (£000)   Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2013482-6.9-2.4nil
2014983-4.9-1.4nil
2015859-18.3-3.9nil
2016**nil-4.7-2.5nil
2017nil-12.3-4.3nil
% change----
Ex-div:n/a   
Payment:n/a   

*Includes intangible assets of £164m, or 16p a share

*Revenue restated to reflect disposal of Italian portfolio