Armour Energy Production Update
On 30 May 2019, Armour released a production update on the Kincora Project well operations. In particular, Armour announced that they had experienced production of formation water within the Myall Creek 5A (MC5A) well which had been recently connected. Although initial flow rates were encouraging (at about 2.1TJ/day, compared to our assumption of 1.5TJ/day for new wells), the formation of water led the company to temporarily shut down the well as it seeks to resolve this operational issue. While this is a clear setback, it is important to note that Armour’s average daily production during the March-ending quarter was 9.9TJ, or just below our full year FY19 average of 10.4TJ. MC5A is part of a broader drilling programme currently underway from which Armour is aiming to achieve daily production rate of 20TJ by the end of 2019. This compares to a materially lower assumption in our forecast of 14.7TJ.
Overall, while management has noted that production results from the MC5A well have been disappointing, we recognise that this is a transformation period for the company as it moves away from exploration and into production. Armour has doubled its Proved and Probable (2P) reserves in the last 12 months and as such, combined with our forecast production assumption for FY20, we are comfortable that the company will be able to replace this lost production.
Aroundtown announces 1Q19 results
On 29 May 2019, Aroundtown SA (Aroundtown, Company) announced 1Q19 results for the quarter ended 31 March 2019. Earnings were robust with Aroundtown recording profit for the period of EUR436.9m, an increase of 18% compared to 1Q18. Further, adjusted EBITDA also increased to EUR179.6m, a 34% gain on 1Q18. Cash flow from operations increased to EUR122.9m on the back of accretive transactions and stronger operating income. The Company strengthened its balance sheet by increasing cash to EUR1.57bn, after issuing EUR1.2bn in new bonds and retiring EUR319m of short-term, high coupon bonds. The Company continues its conservative financial strategy by increasing debt maturities (an average of 7.5 years) and reducing the Company’s average cost of debt, which currently stands at 1.8%.
The robust result is a function of Aroundtown’s strategy of increasing operational performance. The Company continues to sell non-core and maturing assets and reinvest capital into high quality properties located in prime locations such as Berlin, Frankfurt and Cologne. During 1Q19, the Company disposed of assets valued at EUR171m in Berlin and reinvested the capital in hotel and office assets, also located in Berlin. The Company also continued to reduce vacancies, extend lease terms and increase rent, leading to net rental income growth for 1Q19 of 4.5%, compared to 1Q18.
Frontier announces sale of operations
On 30 May 2019, Frontier Communications (Frontier, Company) agreed to sell its operations in Washington, Idaho and Montana to WaveDivision LLC and Searchlight Capital Partners. The all-cash transaction, for USD1.35bn, is a modest credit positive for the Company; the deal will provide additional liquidity for debt reduction. The Company stated that the proceeds will be used to repay its debt, which totals USD17.1bn, as at 31 March 2019.
The transaction is not expected to improve Frontier’s leverage. S&P have indicated the sale of the operations will reduce the company’s EBITDA by approximately USD275m. Further, the Company continues to experience customer churn as it continues to lose subscribers to its competitors. This will maintain pressure on earnings even as the Company continues to focus on cost reduction which has maintained EBITDA broadly constant in recent times.
W.A. Stockwell announces quarterly results
On 31 May 2019, W.A. Stockwell (Stockwell, Company) announced results for the quarter ended 31 March 2019. Construction, development and pre-sales continue to track well, despite property headwinds. The Company continued to perform reasonably well and reported NPAT of AUD4.4m and net assets of AUD68.3m. The Company’s existing shopping centres, located in Mackay, Bargara and Stones Corner, continue to operate well. Vacancy rates in the residential business remains steady in conjunction with growing rents.
Stockwell advised that 80% of homes at its Solana Lifestyle Resort, based on Bribie Island, are now complete or under construction. Further, its Virtuoso project is nearing completion with 67 of the 77 apartments pre-sold and apartment settlements expected in the next quarter.
Construction at its Ferry Road site is well advanced and management indicates that pre-sales are tracking well, with completion forecasted in the March 2020 quarter. Muse and Boggo Road continue to attract investors, despite property headwinds, and sales continue to be steady. Construction has commenced on the Flagstone Central Shopping Centre which was acquired at the start of FY2019, and expected to be completed by 1H20.