Quicky on Inpex (1605 JP)

With current developments within the energy markets and energy crisis looming in Europe (and elsewhere), it might be worth to take another look …

This is not investment advice. Please read the disclaimer. I might own discussed stock(s) currently or at a later time.

I mentioned the company Inpex (1605 JP) some time ago, because I stumbled over its name reading an article related to Shell (RDS). Inpex’ oil and natural gas production mostly takes place in Middle East/Africa (39% of total production in 2021) and in Asia/Oceania (44%).

Current devlopments within the energy sector are alarming. A bunch of British energy names will likely go bankrupt, because wholesale energyprices are above the price cap (recent statements indicated they will not be bailed out – of course that remains to be seens…). As bloomberg writes

Europe’s energy crisis is coming for the rest of the world this winter. The stark reality is there just isn’t enough natural gas to fuel the post-pandemic recovery. The Big Take discusses how the green movement means nations are more dependent on the colorless, odorless commodity to heat homes and power industries.

Bloomberg

I first thought about European electricity producers as interesting names but pure-plays are scarce and were mostly expensive before. Inpex’ rally from its 2020 bottom (75%, incl. +4.8% today) is not that impressive when compared to RDS (80%) or Gazprom (155%).

fin results presentation for six months ended june 30, 2021
from AUG 10/11, 2021

Inpex revised forecast from Aug 10 is already dated – I guess. They forecast Net Income of JPY 170bn, with the assumption of avg. Brent price in H2’21 of $65 (now at $79). What is the probability of Inpex exceeding FY forecasts? It is everybodys guess, but it should be quite high!

  • Current market value is JPY 1,250bn ($12bn) resulting in a fwd earnings yield of 13.6% (or 7.4x P/E)
    • based on AUG 10 forecast
  • EV is 2,500bn and likely higher, due to considerable off-BS debt (from JVs)
  • Dividend yield is c. 4% (despite the stock rallying almost 15% in the last month)
  • P/B is quite low at 0.42x
  • FCF forecast is for 320bn (attn. corporate FCF definitions can be quite different) and might indicate that profits understate true profitability. Investments are depressed though. Still, operating CF forecast is up +27%, and likely too conservative
FY 12/2020 presentation from Feb 12, 2021.
presentation for six month ending June 2021, from August 10, 2021
Inpex (blue) and WTI (red) normalized as of Jan 1st, 2020

Next earnings announcement is on Nov 5th, 2021. I guess they are good for an UP-date of their AUG FY forecast.

On September 29th, 2021, I bought a 3.2% position in Inpex at JPY 882 per share. I think of it as a ‘side-bet’ since its funadamental value is largely dependent on uncontrollable external factors (commodity prices) but it is not expensive and Q3, Q4 results should act as a near term catalyst.

I hope you enjoyed this post.


Update NOV 8: I wrote a twitter thread on Inpex’ Q3 results, released NOV 5.

Further reads

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