Share Code: REN – Market Cap: R2.2bn – PE: -50.5x – DY: 0.0
News: Helium and LNG offtakes lining up nicely
- Phase 1: Renergen has signed a 5-year LNG offtake with a major glass manufacturer, Consul Glass. The supply of LNG is to begin in January 2022 and ramp-up to 14tons/day. The LNG will be priced off the floating South African LPG price.
- Phase 2: A raft of supply agreements for a total of c.65% of the expected helium production of Phase 2 has been signed with a range of major players (Linde Inc., Messer LLC, Helium24 LLC) for between 10 to 15 years. The helium will be priced in US Dollars with annual escalations linked to the US CPI.
Spot Prices: Moving in Renergen’s favour
- Most spot prices and currencies have gone in Renergen’s favour, thus leading to a strong uplift in the Group’s implied Sum-of-the-Parts (SOTP):
- South African Diesel Whole Price (A1) has risen +7%, leading to a higher value for the Group’s LNG reserve that is priced at a 25% discount to this price,
- Rand has weakened nearly 9% versus the US Dollar, both helping lift up the above-noted diesel price and boosting the USD-denominated helium price, &
- The South African 10-year bond rate has dropped from 9.26% to 8.96%, lowering our WACC & boosting our NPV.
Valuation and Implied Return: Contrary to share price weakness…
- Reflecting the above-changed input variables (amongst several other minor ones), we see REN’s fair value as 5603cps (previously: 4535cps) and its 12m TP as 6567cps (previously: 5330cps).
- We find it strange that the share price has moved contrary to the positive movements in the variables driving up the implied fair value of Renergen.
Refer to our Initiation of Coverage for more background.