Tag Archives: helium

Renergen – FY 21 – Nearing Phase One & Derisking Phase Two

Share Code: REN – Market Cap: R2.7 – PE: -65.2x – DY: 0.0%

FY 21 Results: Smaller than Expected Preproduction Loss

  • Renergen’s operating loss was smaller than expected despite a small revenue miss as lost production (due to the lockdown) was offset costs.
  • The Group spent R125.7m on assets under construction, capitalized R21.5m intangible assets and made a second draw down on its US International Development Finance Corporation (DCF) loan to the tune of $12.5m. The Group’s short-term unencumbered cash reserves sit at R130m.

Progress Updates: Almost Entire Positive

  • The Group has concluded a partnership with Total SA as LNG distribution is set up down the key N1 route.
  • Drilling of P007 & MDR1 both reflect strong resource, flow & helium concentration data, highlighting potentially better-quality resources and/or lower capex intensity of Phase Two.
  • The Group has concluded its first helium sales agreement with a global tier-one automotive supplier for Phase Two.
  • Finally, The Group’s innovative cold chain storage solution (Cryo-Vacc™) made its first sale, moving post-revenue.

Forecast, Valuation and Implied Return: Appears Undervalued

  • Since our Initiation, our major assumptions remain the same, albeit we have updated our model for the latest spot prices that, in general, have moved in Renergen’s favour.
  • Our DCF-driven sum-of-the-parts (SOTP) valuation for Renergen implies Phase One & Two—offset by central costs, debt and (potential) dilution—are worth 4149cps (previously 3539cps). After options for Evander and Cryo-Vacc are added, we see Renergen’s share as potentially worth 4978cps (previously 4247cps).
  • Rolled-forward by CoE, our 12m TP is 5850cps (previously 4977cps) or over double what the current share price is.

Refer to our Initiation of Coverage for more background on this stock.

Renergen – Initiation of Coverage – Lighter-than-Air Falling to the Bottom-Line

Share Code: REN – Market Cap: R2.3bn – PE: -34.9x – DY: 0.0%

Business Overview: Near-term Helium & LNG Producer

  • Renergen owns an onshore petroleum production right to the “Virginia Gas Project” that is rich in methane (LNG) and helium and the Group is developing in a two-phased approach.
  • Renergen is in a formidable position to move up the value-curve as Phase One nears first-production.
  • Importantly, the Virginia’s Phase Two could be multiples the size of Phase One and unlock staggering value in the Group.

LNG & Helium Markets: Attractive Prospects

  • South Africa is an energy-scarce economic region with both a good potential LNG demand and a potential supply deficit of the gas in its near-future as some existing assets come offline.
  • The global helium market is opaquer, but the recent drop-off in USA supply and uncertainty around Russia’s planned supply growth combine to imply tight(er) helium supplies post-pandemic. Finally, the major consumers of helium (aerospace, semiconductors & MRIs) are all above-average growth vectors and cannot substitute helium for anything else.

Forecast, Valuation and Implied Return: Upside Apparent

  • Our DCF-driven sum-of-the-parts (SOTP) valuation for Renergen implies Phase One & Two—offset by central costs, debt and (potential) dilution—are worth 3539cps. After options for Evander and Cryo-Vacc are added, we see Renergen’s share as potentially worth c.4247cps.
  • Rolled-forward by CoE, our 12m TP is 4977cps.

Key Up- & Downside Risks: Lots of Moving Parts

  • Running a sensitivity analysis on our model highlights that Renergen’s valuation is more sensitive to helium than LNG, but both prices are ultimately sensitive to the USD/ZAR rate.
  • Inflation, production, and resource risks also exist here.