Prospex Energy (PXEN)
FY 2023 Results
Prospex Energy (PXEN LN) is an investment company with exposure to European gas and power markets. The company has recently reported full year results with a net loss of £1.2m which broadly represents the G&A of the investment company with cash generative performance from the underlying investments; an operating gas to power plant in Spain (49.9%) and producing gas assets in Italy (37%).
Stable Platform for Growth
A £7.1m profit in 2022 reflected the £9.4m positive revaluation based on a higher interest in the Italian Selva asset and rising gas prices. Despite moving into profitable production, 2023 experienced lower gas prices resulting in a £496k downward revaluation leaving PXEN with investments with a book value of £15.6m. Selva has now delivered three profitable quarters of production, most recently 6.5MMscm with net revenues to PXEN of €718k. The operating partner is preparing to run 3D seismic on the broader targets within the licence area. In Spain, production continued at the constrained output level with the company awaiting permitting for new gas well drilling that will enable an increase in output from 2.7MW up to 8.2MW. Gross revenue of €1.8m was down from €3.4m YoY due to lower power prices.
Due to the profitable performance of the underlying assets, the company announced that it had fully repaid all of its outstanding debt in February 2024 which stood at £2.6m at the start of 2023. With liabilities reduced and profitable investments the company can cover working capital requirements from current resources such as the repayment of the £5.5m in shareholder loans to the Selva operating company. This stable position is enabling the company to undertake an active business development strategy seeking assets which are complementary to the existing strategy.
Recommendation and Target Price
We have updated our valuation for recent changes to production outlook and pricing, however, highlight that recent favourable weather conditions, both the mild winter and recent strong winds have masked the fragility of Europe’s higher cost import dependent gas market. A change in these conditions could quickly result in increased energy price volatility benefitting PXEN’s near-term cashflows. We also highlight exploration activity at Selva with 3D seismic planned for the near term designed to determine well locations while well permits have been lodged to unlock underutilised capacity in Spain.
We reiterate our Buy recommendation and adjust our target price to 18p/sh..
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