Nu-Oil and Gas plc (LON:NUOG): Is Oil & Gas Attractive Relative To AIM Peers?
Nu-Oil and Gas plc (AIM:NUOG), a GBP£10.11M small-cap, is an oil and gas company operating in an industry which has endured a prolonged oil price downturn since 2014. However, energy-sector analysts are forecasting for the entire industry, a highly optimistic growth of 55.74% in the upcoming year , and a whopping growth of 73.59% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the UK stock market as a whole. Is the oil and gas industry an attractive sector-play right now? Below, I will examine the sector growth prospects, as well as evaluate whether Nu-Oil and Gas is lagging or leading its competitors in the industry. View our latest analysis for Nu-Oil and Gas
What’s the catalyst for Nu-Oil and Gas’s sector growth?
The oil price collapse triggered a wave of cost reduction among energy businesses as the sector as a whole faced negative growth over the past five years. Global oil and gas companies cut capital expenditures by about 40% during 2014 and 2016, and as part of this cost cutting initiative, some 400,000 workers were let go, with major projects cancelled or deferred. Only now has the sector begun to emerge from its turmoil, and in the previous year, the industry saw growth of over 100%, beating the UK market growth of 11.51%. Nu-Oil and Gas lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Nu-Oil and Gas may be trading cheaper than its peers.
Is Nu-Oil and Gas and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 24x, higher than the rest of the UK stock market PE of 18x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 5.74% compared to the market’s 12.78%, illustrative of the recent sector upheaval. Since Nu-Oil and Gas’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Nu-Oil and Gas’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Nu-Oil and Gas has been an oil and gas industry laggard in the past year. If your initial investment thesis is around the growth prospects of Nu-Oil and Gas, there are other oil and gas companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Nu-Oil and Gas fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Nu-Oil and Gas has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its oil and gas peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Nu-Oil and Gas’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Nu-Oil and Gas’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other energy stocks instead? Use our free playform to see my list of over 300 other oil and gas companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
