Deutsche Rohstoff - High operational leverage to provide benefit

Deutsche Rohstoff’s (DRAG’s) flexible business model has enabled it to rise out of the 2020 downturn with cash, including marketable securities, of €22.8m and cheaply purchased undeveloped acreage (in June 2020) offering potential for up to 100 wells. Production could increase by up to 50% during FY21 (based on the top end of management guidance) and EBITDA could almost double, based on an oil price of $60/bbl. DRAG expects to invest up to $60m in FY21 to build up additional production, including c $45m in drilling 12 horizontal wells (2.25 miles in length), which should commence production in Q421, and therefore production is expected to increase further in FY22. We are encouraged by Q1 results (reported today), which show DRAG is comfortably on track to meet its full year guidance.