Peninsula Energy Limited: A Financial Analysis

This assignment tasks you with conducting a comprehensive financial analysis of Peninsula Energy Limited. You will assess the company's market share and position within the Australian energy sector, examine its historical stock performance and risk factors, and ultimately provide investment recommendations based on your findings.

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Program Code: MPA14
Subject Name: Managerial Finance
Subject Code: MPA108

2
Section A: Background & Review of Literature
History
Peninsula Energy Limited is an ASX listed uranium mining company which along with
its subsidiaries is involved in exploring of uranium mines in the United States. It was initially
established as Peninsula Minerals Limited but has modified itself as Peninsula Energy Limited in
the year 2010. It has an interest of 100% in the Lance uranium projects located in Wyoming. The
company was established in the year 1993 and has about 38 employees. It has a wholly-owned
subsidiary of Strata Energy Inc that has began its operations in the year 2015 in Lance Projects
in Wyoming USA.
Industry and Products/Services
The company is carrying out its activities in the energy market of Australia and as such
faces the competitive pressure from the dominant energy companies in the sector such as AGL
Energy and Origin Energy Ltd. The company mining activities mainly involves the exploration
and production of uranium ores.
Location of Business Activities
The company and its subsidiaries commenced in-situ recovery uranium operations at
Lance Projects in Wyoming, USA. In addition to this, the company also carries out its business
activities in parallel in an Internal Pre-Feasibility at Karoo Uranium Projects in South Africa
(Peninsula Energy Limited, 2018).
Market Share
The company at present is having market capitalization of 607.6 m AUD in the energy
industry of Australia (PEN General Information, 2018).
Directors
The company Board is composed of executive and non-executive directors who hold the
responsibility of providing strategic direction to the company. Board is composed of non-
executive chairman, chief executive officer, non-executive directors and Chief Financial Officer.

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Mr. John Harrison is the non-executive chairman possessing a rich wealth of experience and
resource sector knowledge of about 45 year. Mr. Wayne Heili is the Chief Executive Officer
having about 30 year professional carrier in the uranium mining industry. He is holding the
responsibility of overseeing the designing, construction and ramping of the in-situ uranium
project in the USA. Mr. Evgenij Iorich, Mr. Harrison and Mr. Mark Wheatley are the non-
executive directors of the company have a vast experience in the resource sector. Mr. David
Coyne is the finance director having about 20 years of experience in mining and construction
industries (Peninsula Energy Limited, 2018).
Latest P/E Ratio
Latest Market Price as on 9 May, 2018 = 0.25 (As given on yahoo finance)
Earnings per Share = -0.13 (As given on yahoo finance) (Yahoo Finance, 2018)
P/E ratio: 0.25/-0.13 = -1.923
Dividend Policy
The dividend policy is referred as standard guidelines used by a company for deciding
over the matter related to earnings paid out to shareholders. The company has not disclosed its
dividend policy as analyzed from its financial report and it can be stated that the company is not
paying divided over the past few years (Brigham & Michael, 2013).
Environment Impact & policy
The company is involved in mining operating activities and as such faced high
environmental risk due to nature of its operational activities. The company has to comply with all
the relevant environment regulations for ensuring its sustained growth and development. The
company has taken into consideration the adoption of significant procedures and reporting
processes for meeting its environmental responsibilities effectively. The company prepares the
Environment Impact Assessment report as per the Australia and international legislations relating
to environment protection (Peninsula Energy Limited: Annual Report, 2017).
Beta as Given in Literature

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Beta determines the systematic risk associated with a company and the beta of Peninsula
as stated in the literature is 1.36 (Yahoo Finance, 2018).
Section C:
Solution 1:
Standard deviation is generally used to measure the risk of stock and risk of portfolio of
stocks. Standard deviation is considered to be as measurement of volatility. It means more a
stock varies from the average stock return the more will be the volatility of the stock. The fact is
that standard deviation only considers changes (Volatility) in the return of stock over the period
of time in order to compute the risk of a particular stock (Lumby & Jones, 2007).
There are several reasons why standard deviation is not considered reliable measurement
of risk because of its limitation. There are mainly two types of distributions of returns,
symmetrical distribution and asymmetrical distribution. Volatility only considers the
symmetrical distribution and completely ignores the asymmetrical distribution. Most of the best
investment options have return distribution in asymmetrical manner. So it can be said that
standard deviation does not consider the asymmetrical return distribution and it is very important
for measurement of risk. Standard deviation is based on past information that might be useful
for predicting the future performance but it is certain that results changes overtime. Standard
deviation itself cannot determine the riskier stock when there is comparison of the two stocks. It
need some base to define the stock with highest risk. The base can be expected return or any
other factor that help to provide some base for decision. Standard deviation does not consider the
quantifying aspects of human behaviour while taking the investment decision. On the basis of
overall discussion it can be said that standard deviation does not provide reliable measurement of
risk (Reilly & Brown, 2011).
Solution 2:
Period 1 January 2006 to 1 January 2012
Date Peninsula S&P 200
Share
Price
Monthly
Returns
Marke
t
Monthl
y

5
Index
Return
s
31/12/200
5
0.685
3
4929.6
0
31/01/200
6
1.066
0 0.5556
4921.3
0 -0.0017
28/02/200
6
1.408
7 0.3214
5129.7
0 0.0423
31/03/200
6
1.066
0 -0.2432
5258.8
0 0.0252
30/04/200
6
0.989
9 -0.0714
5001.7
0 -0.0489
31/05/200
6
0.761
4 -0.2308
5073.9
0 0.0144
30/06/200
6
0.799
5 0.0500
4986.0
0 -0.0173
31/07/200
6
0.799
5 0.0000
5115.4
0 0.0260
31/08/200
6
1.066
0 0.3333
5154.1
0 0.0076
30/09/200
6
1.027
9 -0.0357
5384.4
0 0.0447
31/10/200
6
2.170
1 1.1111
5482.1
0 0.0181
30/11/200
6
2.627
0 0.2105
5669.9
0 0.0343
31/12/200
6
2.779
2 0.0580
5773.4
0 0.0183
31/01/200
7
3.236
1 0.1644
5832.5
0 0.0102
28/02/200 3.083 -0.0471 5995.0 0.0279

6
7 8 0
31/03/200
7
3.693
0 0.1975
6166.0
0 0.0285
30/04/200
7
3.045
8 -0.1753
6313.5
0 0.0239
31/05/200
7
3.197
4 0.0498
6274.9
0 -0.0061
30/06/200
7
2.768
4 -0.1341
6144.2
0 -0.0208
31/07/200
7
2.300
5 -0.1690
6247.2
0 0.0168
31/08/200
7
2.105
6 -0.0847
6567.8
0 0.0513
30/09/200
7
1.871
6 -0.1111
6754.1
0 0.0284
31/10/200
7
1.754
6 -0.0625
6533.1
0 -0.0327
30/11/200
7
1.637
7 -0.0667
6339.8
0 -0.0296
31/12/200
7
1.286
7 -0.2143
5650.3
0 -0.1088
31/01/200
8
1.169
8 -0.0909
5572.1
0 -0.0138
29/02/200
8
0.935
8 -0.2000
5355.7
0 -0.0388
31/03/200
8
1.013
8 0.0833
5595.4
0 0.0448
30/04/200
8
1.520
7 0.5000
5654.7
0 0.0106
31/05/200
8
1.247
7 -0.1795
5215.3
0 -0.0777

7
30/06/200
8
1.169
8 -0.0625
4977.4
0 -0.0456
31/07/200
8
0.974
8 -0.1667
5135.6
0 0.0318
31/08/200
8
0.818
8 -0.1600
4600.5
0 -0.1042
30/09/200
8
0.584
9 -0.2857
4018.0
0 -0.1266
31/10/200
8
0.623
9 0.0667
3742.5
0 -0.0686
30/11/200
8
0.623
9 0.0000
3722.3
0 -0.0054
31/12/200
8
0.728
0 0.1668
3540.7
0 -0.0488
31/01/200
9
0.623
9 -0.1430
3344.5
0 -0.0554
28/02/200
9
0.857
8 0.3750
3582.1
0 0.0710
31/03/200
9
1.286
7 0.5000
3780.5
0 0.0554
30/04/200
9
1.403
7 0.0909
3818.0
0 0.0099
31/05/200
9
1.200
0 -0.1451
3954.9
0 0.0359
30/06/200
9
1.520
0 0.2667
4244.0
0 0.0731
31/07/200
9
1.680
0 0.1053
4479.1
0 0.0554
31/08/200
9
2.400
0 0.4286
4743.6
0 0.0591
30/09/200 2.000 -0.1667 4643.2 -0.0212

8
9 0 0
31/10/200
9
1.880
0 -0.0600
4701.4
0 0.0125
30/11/200
9
1.720
0 -0.0851
4870.6
0 0.0360
31/12/200
9
2.000
0 0.1628
4569.6
0 -0.0618
31/01/201
0
1.800
0 -0.1000
4637.7
0 0.0149
28/02/201
0
1.720
0 -0.0444
4875.5
0 0.0513
31/03/201
0
1.640
0 -0.0465
4807.4
0 -0.0140
30/04/201
0
1.400
0 -0.1463
4429.7
0 -0.0786
31/05/201
0
1.160
0 -0.1714
4301.5
0 -0.0289
30/06/201
0
1.320
0 0.1379
4493.5
0 0.0446
31/07/201
0
1.400
0 0.0606
4404.2
0 -0.0199
31/08/201
0
1.520
0 0.0857
4582.9
0 0.0406
30/09/201
0
1.920
0 0.2632
4661.6
0 0.0172
31/10/201
0
2.200
0 0.1458
4584.4
0 -0.0166
30/11/201
0
3.000
0 0.3636
4745.2
0 0.0351
31/12/201
0
3.960
0 0.3200
4753.9
0 0.0018

9
31/01/201
1
5.400
0 0.3636
4831.7
0 0.0164
28/02/201
1
3.560
0 -0.3407
4837.9
0 0.0013
31/03/201
1
3.280
0 -0.0787
4823.2
0 -0.0030
30/04/201
1
3.400
0 0.0366
4708.3
0 -0.0238
31/05/201
1
2.960
0 -0.1294
4608.0
0 -0.0213
30/06/201
1
2.880
0 -0.0270
4424.6
0 -0.0398
31/07/201
1
2.280
0 -0.2083
4296.5
0 -0.0290
31/08/201
1
1.920
0 -0.1579
4008.6
0 -0.0670
30/09/201
1
1.720
0 -0.1042
4298.1
0 0.0722
31/10/201
1
1.440
0 -0.1628
4119.8
0 -0.0415
30/11/201
1
1.440
0 0.0000
4056.6
0 -0.0153
31/12/201
1
2.000
0 0.3889
4262.7
0 0.0508
31/01/201
2
2.520
0 0.2600
4298.5
0 0.0084
Peninsul
a
S&P
200
Average Return 4.27% -0.09%
Variance 0.0591 0.0019
Standard 24.48% 4.43%

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Deviation
(Yahoo Finance, 2018)
Period 2 January 2012 to 1 January 2018
Date
Peninsula S&P 200
Share
Price Monthly
Returns
Marke
t
Index
Monthl
y
Return
s
31/12/201
1
2.000
0
4262.7
0
31/01/201
2
2.520
0 0.2600
4298.5
0 0.0084
29/02/201
2
2.560
0 0.0159
4335.2
0 0.0085
31/03/201
2
2.120
0 -0.1719
4396.6
0 0.0142
30/04/201
2
1.440
0 -0.3208
4076.3
0 -0.0729
31/05/201
2
1.320
0 -0.0833
4094.6
0 0.0045
30/06/201
2
1.200
0 -0.0909
4269.2
0 0.0426
31/07/201
2
1.200
0 0.0000
4316.1
0 0.0110
31/08/201
2
1.120
0 -0.0667
4387.0
0 0.0164
30/09/201
2
1.440
0 0.2857
4517.0
0 0.0296
31/10/201
2
1.480
0 0.0278
4506.0
0 -0.0024
30/11/201 1.560 0.0541 4649.0 0.0317

11
2 0 0
31/12/201
2
1.560
0 0.0000
4878.8
0 0.0494
31/01/201
3
1.320
0 -0.1538
5104.1
0 0.0462
28/02/201
3
1.240
0 -0.0606
4966.5
0 -0.0270
31/03/201
3
1.040
0 -0.1613
5191.2
0 0.0452
30/04/201
3
1.160
0 0.1154
4926.6
0 -0.0510
31/05/201
3
0.960
0 -0.1724
4802.6
0 -0.0252
30/06/201
3
1.040
0 0.0833
5052.0
0 0.0519
31/07/201
3
1.040
0 0.0000
5135.0
0 0.0164
31/08/201
3
1.080
0 0.0385
5218.9
0 0.0163
30/09/201
3
0.920
0 -0.1481
5425.5
0 0.0396
31/10/201
3
0.880
0 -0.0435
5320.1
0 -0.0194
30/11/201
3
0.840
0 -0.0455
5352.2
0 0.0060
31/12/201
3
0.960
0 0.1429
5190.0
0 -0.0303
31/01/201
4
1.040
0 0.0833
5404.8
0 0.0414
28/02/201
4
1.400
0 0.3462
5394.8
0 -0.0019

12
31/03/201
4
1.280
0 -0.0857
5489.1
0 0.0175
30/04/201
4
1.200
0 -0.0625
5492.5
0 0.0006
31/05/201
4
0.920
0 -0.2333
5395.7
0 -0.0176
30/06/201
4
1.000
0 0.0870
5632.9
0 0.0440
31/07/201
4
0.960
0 -0.0400
5625.9
0 -0.0012
31/08/201
4
0.960
0 0.0000
5292.8
0 -0.0592
30/09/201
4
1.000
0 0.0417
5526.6
0 0.0442
31/10/201
4
0.840
0 -0.1600
5313.0
0 -0.0386
30/11/201
4
0.800
0 -0.0476
5411.0
0 0.0184
31/12/201
4
0.840
0 0.0500
5588.3
0 0.0328
31/01/201
5
0.720
0 -0.1429
5928.8
0 0.0609
28/02/201
5
0.720
0 0.0000
5891.5
0 -0.0063
31/03/201
5
0.760
0 0.0556
5790.0
0 -0.0172
30/04/201
5
0.920
0 0.2105
5777.2
0 -0.0022
31/05/201
5
0.880
0 -0.0435
5459.0
0 -0.0551
30/06/201 1.000 0.1364 5699.2 0.0440

13
5 0 0
31/07/201
5
0.960
0 -0.0400
5207.0
0 -0.0864
31/08/201
5
1.000
0 0.0417
5021.6
0 -0.0356
30/09/201
5
1.230
0 0.2300
5239.4
0 0.0434
31/10/201
5
1.180
0 -0.0407
5166.5
0 -0.0139
30/11/201
5
1.100
0 -0.0678
5295.9
0 0.0250
31/12/201
5
0.915
0 -0.1682
5005.5
0 -0.0548
31/01/201
6
0.820
0 -0.1038
4880.9
0 -0.0249
29/02/201
6
0.940
0 0.1463
5082.8
0 0.0414
31/03/201
6
0.765
0 -0.1862
5252.2
0 0.0333
30/04/201
6
0.650
0 -0.1503
5378.6
0 0.0241
31/05/201
6
0.490
0 -0.2462
5233.4
0 -0.0270
30/06/201
6
0.675
0 0.3776
5562.3
0 0.0628
31/07/201
6
0.600
0 -0.1111
5433.0
0 -0.0232
31/08/201
6
0.555
0 -0.0750
5435.9
0 0.0005
30/09/201
6
0.590
0 0.0631
5317.7
0 -0.0217

14
31/10/201
6
0.555
0 -0.0593
5440.5
0 0.0231
30/11/201
6
0.560
0 0.0090
5665.8
0 0.0414
31/12/201
6
0.685
0 0.2232
5620.9
0 -0.0079
31/01/201
7
0.655
0 -0.0438
5712.2
0 0.0162
28/02/201
7
0.500
0 -0.2366
5864.9
0 0.0267
31/03/201
7
0.345
0 -0.3100
5924.1
0 0.0101
30/04/201
7
0.355
0 0.0290
5724.6
0 -0.0337
31/05/201
7
0.335
0 -0.0563
5721.5
0 -0.0005
30/06/201
7
0.345
0 0.0299
5720.6
0 -0.0002
31/07/201
7
0.370
0 0.0725
5714.5
0 -0.0011
31/08/201
7
0.350
0 -0.0541
5681.6
0 -0.0058
30/09/201
7
0.290
0 -0.1714
5909.0
0 0.0400
31/10/201
7
0.420
0 0.4483
5969.9
0 0.0103
30/11/201
7
0.450
0 0.0714
6065.1
0 0.0159
31/12/201
7
0.410
0 -0.0889
6037.7
0 -0.0045
31/01/201 0.285 -0.3049 6016.0 -0.0036

15
8 0 0
Peninsul
a
S&P
200
Average Return -1.47% 0.53%
Variance 0.0236 0.0011
Standard
Deviation 15.48% 3.27%
(Yahoo Finance, 2018)
Solution 3:
Standard deviation tells 95% certainty level that expected return of the stock or market
index will deviate on either side of the average return. For example, in case of Peninsula Limited
the expected return for period 1 will deviate by 24.48% on either side of average return of
4.27%. It means expected return can range between -20.21% and 28.75%. Similarly for period 2,
the expected return for Peninsula will deviate by 15.48% on either side of average return of -
1.47%. It means expected return can range between -16.95% and 14.01%. In case of Market
Index (S& P) the expected market return will deviate by 4.43% on either side of average market
return (Schlichting, 2013).
Solution 4:
On the basis of the analysis of the risk position of the Peninsula Limited and S& P 200
through analyzing the standard deviation and average return it can be said that Peninsula is much
riskier than the S&P 200. In period 2, Peninsula is more risky than the S&P 200 because
Peninsula has high percentage of standard deviation and very low average return as compare to
S&P 200. In period 1, it can be said S&P 200 is more risky than Peninsula because average
return of Peninsula is higher than S&P that indicates that expected return of Peninsula will better
as compared to S&P 200 even though standard deviation is higher in case of Peninsula (Ackert &
Deaves, 2009).
Solution 5:
Period 1 Peninsul S&P

16
a 200
Average Return 4.27%
-
0.09%
Variance 0.0591 0.0019
Standard
Deviation 24.48% 4.43%
Covariance 0.0043
Beta 2.203
Period 2
Peninsul
a
S&P
200
Average Return -1.47% 0.53%
Variance 0.0236 0.0011
Standard
Deviation 0.1548 0.0327
Covariance 0.0009
Beta 0.887
a) Covariance tells how the changes in the one variable (here refers to return of Peninsula)
is associated with second variable (return of S&P 200). Covariance specifically measures
the degree of two variables are linearly associated with each other. In period 1 the
covariance of both stock and market is 0.0043 which is greater than covariance in period
2 that indicates returns of both stock and market is closely linked in period 1 as compared
to period 2 (Baker & Nofsinger, 2010).
b) Beta, if less than 1 means return of the stock is less volatile than the market and if beta is
greater than 1, it indicates return of stock is more volatile than the market. For example in
period 1, beta is 2.203 that show returns of Peninsula will move 2.203 basis points if
market return move by 1 bases point. Similarly, in period 2 the beta is 0.887 that shows if
market return moves by 1 basis point than stock return will move only by 0.887 points
(Deegan, 2013).

17
Solution 6:
Beta is better measurement of risk because it calculates risk of market as whole, while
standard deviation measures risk of individual stock. Beta considers total volatility while
standard deviation measures the total risk. Beta calculates the market risk premium while
standard deviation considers only risk. Beta provides whether stock return will be more or less
than the market return.
Yes, there is variation in beta as estimated in literature and as calculated above for two
periods. It is because beta changes or varies according to the time period. In literature the beta
has been taken for latest time period. While in above two periods the beta is calculated for prior
periods (Elton, Gruber, Brown & Goetzmann, 2009).
Section D: Changes and Recent Developments
Industry of Operation
The company carries out its operations in the highly competitive energy industry of
Australia. It faces stiff competition from the dominant players in the market such as AGL Energy
Limited and Origin Energy Limited.
Impact of Legislative Changes
The company has to comply with all the significant legislations in Australia such as Coal
Industry Act 2001 and the health and safety laws developed by Fair Work Ombudsman in
Australia. The safe work laws established in Australia has established that all mining workers
should be provided healthy workplace environment to minimize the occurrence of any uncertain
conditions during the mining activities.
Competitive Pressures
The company is facing high competition from the dominant players present in the
industry such as AGL Energy and Origin Energy Limited. The increasing competition in the
energy industry of Australia can impact its growth and development in the long-term period of
time (Australian Energy Regulator, 2018).

18
International Events
The company implements international law in order to comply with the environmental
regulations for meeting its environment responsibilities effectively. It also complies with the
international financial reporting standards in development ad presentation of its general-purpose
financial statements.
Major Suppliers & Customers
The major suppliers of the company are Lance Uranium projects in USA and Karoo
uranium exploration projects in South Africa.
Management & Ownership Changes
The company management team consists of a well0diversified team of competent
executive and non-executive directors having the relevant skills and knowledge to meet the
company long-term goals and objectives (Peninsula Energy Limited: Annual Report, 2017).
Section E: Investment recommendation
It can be said on the basis of overall analysis carried out in the report that Peninsula
Energy Limited has not yet attained a domain position in the energy market of Australia. Its
market share is relatively less in comparison to other energy companies that have dominant
position in the industry such as AGL and Origin Energy Limited. As such, the high competition
in the energy sector of Australia can negatively impact its plan of long-term growth and
development. The company has not clearly stated its dividend policy in the financial report and
also has not pad dividend in the past few years as analyzed from its annual report for the year
2017. Thus, the investors are not recommended to invest in the company on the basis of non-
financial information analysis carried out in the report.
On the basis of stock return and risk analysis as compared to risk and return of market it
can be said that in period 2 (Latest period) the share price of company has not received the
growth as it was expected by the Peninsula. In period 2, average return of company was showing
negative growth with high standard deviation and beta of the company is also less than 1. All
these factors have made to recommend the investor to sell the shares of Peninsula Limited.