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Sundance Energy Australia Limited's (ASX:SEA) Path To Profitability

Simply Wall St

Sundance Energy Australia Limited's (ASX:SEA): Sundance Energy Australia Limited operates as an onshore oil and gas company in the United States. The AU$285m market-cap posted a loss in its most recent financial year of -US$28.1m and a latest trailing-twelve-month loss of -US$44.0m leading to an even wider gap between loss and breakeven. As path to profitability is the topic on SEA’s investors mind, I’ve decided to gauge market sentiment. In this article, I will touch on the expectations for SEA’s growth and when analysts expect the company to become profitable.

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View our latest analysis for Sundance Energy Australia

Consensus from the 7 Oil and Gas analysts is SEA is on the verge of breakeven. They expect the company to post a final loss in 2019, before turning a profit of US$46m in 2020. Therefore, SEA is expected to breakeven roughly a few months from now. In order to meet this breakeven date, I calculated the rate at which SEA must grow year-on-year. It turns out an average annual growth rate of 103% is expected, which signals high confidence from analysts. Should the business grow at a slower rate, it will become profitable at a later date than expected.

ASX:SEA Past and Future Earnings, May 24th 2019

I’m not going to go through company-specific developments for SEA given that this is a high-level summary, however, keep in mind that typically oil and gas companies, depending on the stage of operation and resource produced, have irregular periods of cash flow. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.

Before I wrap up, there’s one issue worth mentioning. SEA currently has a relatively high level of debt. Typically, debt shouldn’t exceed 40% of your equity, which in SEA’s case is 92%. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.

Next Steps:

There are key fundamentals of SEA which are not covered in this article, but I must stress again that this is merely a basic overview. For a more comprehensive look at SEA, take a look at SEA’s company page on Simply Wall St. I’ve also put together a list of relevant aspects you should look at:

  1. Valuation: What is SEA worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether SEA is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Sundance Energy Australia’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.