London, UK, 9 April 2018

Edison issues initiation on AJ Lucas Group (AJL)

AJ Lucas offers investors exposure to the most advanced UK shale appraisal programme in the UK. Current activity is focused on a drilling campaign at Preston New Road where the company has approval to drill and test up to four horizontal wells. Prior to appraisal, which is aimed at reducing technical and economic uncertainty, we utilise a probabilistic approach to valuation estimating a 67% chance of commercial success for UK shale (NPV15 >0) with a net P50 risked value of A$0.92/share. At a group level, incorporating AJL's operating business units and net debt, we derive a P50 (mid-case) valuation of A$0.86/share.

For the group's continuing operating business we use a conservative 6x average EBITDA in light of recent revenue and margin volatility. Our P50 (mid-case) group valuation stands at A$0.86/share. Investors should be aware of the high cost of current debt, and should make further concessions in order to factor in their view of UK shale political risk.

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Sanjeev Bahl, +44 (0)20 3077 5742
Elaine Reynolds, +44 (0)20 3077 5713
oilandgas@edisongroup.com

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