Absurdly cheap Premier Oil plc looks like an unmissable bargain stock

This is a good day for investors in Premier Oil(LSE: PMO), the independent British company with gas and oil interests in the UK, Asia, Africa and Mexico. Its share price is up 6.24% at time of writing, after reporting its full-year 2017 results this morning. The stock was cheap before today's announcement, unmissably cheap in my opinion, but does it still look good value now?

Premier league

Premier's oil production hit a record high in 2017, lifting total revenue from all operations to $1.1bn, against $983.4m in 2016, with a further boost from the recovery in the oil price. It posted a reported 15% rise in cash flows from operations to $496m, helped by its low cost base.

Chief executive Tony Durrant had plenty to feel good about: "2017 was a successful year for Premier with the refinancing completed, our producing portfolio performing well, the Catcher field brought on-stream and the notable Zama oil discovery in Mexico."

Crude facts

He was also optimistic about the year ahead, saying: "2018 will see further production growth, allowing us to deliver on our plans for reducing net debt to restore balance sheet strength while also progressing projects that deliver the highest financial returns."

Premier's comprehensive refinancing, which cast a shadow over the share price for some years, is now completed, leaving the company with year-end cash and undrawn facilities of $541.2m. The company also boasts a low cost base of just $16.40 a barrel, which is pretty handy with Brent crude trading around $64. Premier realised an average oil price for the year of $52.90 a barrel last year, up from $44.10 in 2016.

Catcher if you can

It also cut its debt development and exploration capex by 58% to $275.6m. Positive free cash flow stood at $71.2m while the group trimmed its net debt to $2.724bn. There is still a long way to go, as this marks a relatively small year-on-year reduction from $2.765bn. Premier reported a post-tax loss of $254.8m due to previously disclosed non-cash impairment charges and one-time refinancing fees.

Management also reported that Catcher generated its first oil in December, on schedule and under budget, while its "world-class" 600m barrel Zama discovery in offshore Mexico and $300m of non-core asset disposals gave investors something else to be happy about. Premier's reserves now total 902m barrels, up from 835m in 2016.

Forward look

I must admit I was sceptical about Premier's prospects when I examined it in December, my major concern being its debt pile, which offset the attraction of its rock bottom valuation of just four times earnings. Today it is slightly more expensive, trading at 6.4 times earnings, yet ironically looks more of a bargain. Forecast earnings per share growth of 41% in 2019 supplies further encouragement.

My Foolish colleague GA Chester was more prescient than me, rating it a buy in February, and the outlook is certainly brighter. After four years of negative pre-tax earnings, City analysts are pencilling in $153.6m for 2018, followed by $195.27m for 2019.

These are of course only estimates and a lot could go wrong between now and then. Debt is still a concern, but right now it looks like a Premier oil play to me.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.