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Broker tips: Star Energy, Microlise Group

By Iain Gilbert

Date: Wednesday 24 Apr 2024

Broker tips: Star Energy, Microlise Group

(Sharecast News) - Analysts at Canaccord Genuity raised their target price on oil and gas extraction firm Star Energy from 55.0p to 66.0p on Wednesday, taking account of new commodity assumptions.
Canaccord Genuity noted that in 2023, conventional oil and gas production "remained robust" at 2,100 barrels of oil equivalent per day and "substantially ahead" of FY22 output, but noted that financial performance had been constrained by lower commodity prices and the adverse impact of a stronger GBP.

However, the Canadian bank stated that the current upstream emphasis appears to be shifting towards asset optimisation through small-scale projects, with rapid payback periods to bolster production as larger initiatives in Bletchingley, Corringham and Glentworth advance towards implementation.

"The reopening and testing of the geothermal Ernestinovo-3 well in Croatia was completed in a record timeframe although later than originally anticipated. Those results have been submitted to the Croatian authorities, fulfilling the JV commitments, and that paves the way for acquiring a development licence, which we anticipate from the second half of 2024 onwards and we expect to trigger further licence activity," said the analysts, who reiterated their 'buy' rating on the stock.

Canaccord Genuity also noted that a solid reduction in net debt in 2023, along with its newly acquired €25.0m banking facility from Kommunalkredit Austria, alleviates any concerns regarding the repayment of debts due in June and secures funding for upcoming ventures in both the oil and gas and geothermal sectors, providing scope for increased operational activity.

Over at Berenberg, analysts hiked their target price on software firm Microlise Group from 170.0p to 210.0p on Wednesday after the company published its in-line full-year results earlier in the month.

Microlise reported revenues of £71.7m and adjusted underlying earnings of £9.4m, which Berenberg noted represents a 13.1% adjusted EBITDA margin. It also recorded an annual recurring revenue run-rate of £47.7m, which "places it well" to deliver on its FY24 targets.

"With just 0.7% customer churn and a strong ARR run-rate heading into FY24, we think Microlise is very well placed to deliver on the full-year expectations, echoing management commentary. Conditions have improved, with new vehicle orders from OEMs having improved materially, enabling the business to deliver on its record backlog. For context, Microlise delivered 60% of its backlog in FY23, with the remaining 40% to be delivered in FY24," said Berenberg.

The German bank also highlighted that Microlise had announced a maiden dividend of 1.725p per share, a positive return to shareholders, and something the company will likely pursue as a progressive policy going forward. However, it also stated that Microlise's capital allocation policy remains focused on internal projects, followed by mergers and acquisitions, and then finally shareholder returns.

Berenberg, which stood by its 'buy' rating on the stock, added that Microlise trades on a 29x FY25 price-to-earnings ratio.

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