Share Code: REN – Market Cap: R4.6bn – PE: -124x – DY: 0.0%
Central Energy Fund: Due Diligence Successful, Fair Value Implied
- Following Ivanhoe Mines’ option expiring (see our previous note), questions surfaced about the reason for this expiry &, indeed, whether it involved the quality of the Virginia Gas Project (VGP).
- Concurrent to Ivanhoe’s deal, Renergen was fielding a due diligence (DD) by the Central Energy Fund (CEF) for a 10% stake in VGP for R1bn. This DD has successfully concluded and both parties are now seeking final approvals to complete the transaction.
- This is an important event for at least three reasons:
- The positive DD by CEF confirms the quality of the VGP,
- Assuming final approvals are received, this injects R1bn of equity funding into the Phase II funding, &
- This solidifies an arms-length R10bn valuation for VGP (i.e. if 10% is worth R1bn, 100% is worth R10bn).
Our Thoughts: Much Better Price + Less Dilution
- Above, point (3) implies that REN’s 90% stake is worth R9bn or c.6660cps (= R9bn/135.1m shares) versus our previous fair value of 6337cps & the share’s current market price of 3460cps.
- Ivanhoe’s option would have come in at a discount to the current market price (if exercised) &, thus, the CEF’s deal is a lot less dilutive for shareholders and ensures a much large proportion of the eventual VGP value likely accrues to existing shareholders.
Valuation and Implied Return: Unchanged
- We are currently reassessing our valuation and model for REN and will publish this in due course.
- Despite that & due to the CEF deal—assuming no deterioration in exchange rates, commodity prices or interest rates—we believe that the previously communicated valuation at least guides towards a floor value of the Group. Previously, we saw REN’s fair value as around 6337cps & 12m TP of about 7491cps.