Renergen – Large Reserve Upgrade & Implications

Share Code: REN – Market Cap.: R3.8bn – PE: -89.0x – DY 0.0%

News: Large Reserve Upgrade & Upsizing of Phase Two

  • Sproule has published an updated reserve statement on Renergen, revealing large upgrades to the Group’s gas reserves.
  • For example, +428% and +610% was added to the amount of methane & helium in 1P. Similar upsides came through in 2P & 3P.
  • While Phase One remains mostly the same, this has resulted in us making the following key changes to our Phase Two assumptions:
    • Lifting our LNG production from 300tons/day to 720tons/day with a target of c.2.5% yield of helium, &
    • Boosting our capex to R12.2bn with 30% of being raised as equity (the balance being debt & prepaid tokens).

Our Thoughts & Spot Prices: Updated & Refined

  • We have used this opportunity to update spot prices, exchanges rates and interest rates across the model.
  • Likewise, we have tried to understand management’s expectations for LNG and helium basket pricing and, although we feel that some of their views are conservative, we have tried to align our model with these views.

Valuation and Implied Return: Dividend Discount Model Added

  • Our Sum-of-the-Parts for Renergen sees the share’s fair value as c.5,747cps and, on basic assumptions, implies an FY 30E Price Earnings of c.6.1x with a Dividend Yield of c.15.6%.
  • Upon maturity, management intends paying most profits out as dividends. Therefore, we have taken our valuation a step further and attempted a crude Dividend Discount Model (DDM).
  • Our DDM assumptions arrive at a fair value of 6,412cps for REN minority shareholders (after DWT). This is more or less in line with our SOTP model & adds conviction that REN shares are likely to be worth mid-R50/share to mid-R60/share, or certainly above their current 3,065cps share price, despite Phase Two dilution.