Share Code: REN – Market Cap: R3.4bn – PE: -76.3x – DY: 0.0%
H1:22 Results: Sufficiently Capitalised for Phase One
- Group revenue rose during the period, but rising overheads as the Group ramps up towards Phase One first production in late H2 saw its loss slightly larger than we expected.
- OPIC debt, a small share placement, offtake agreements for c.28% of Phase One’s LNG & c.65% of Phase Two’s helium production, & a digital tokenisation mechanism for “prepaid helium” all ensure that the Group is sufficiently capitalized to see Phase One over the line.
- CryoVacc has moved into field trials that could see it becoming commercially viable as a standalone business soon.
- Finally, the favourable exploration outcomes from Evander have triggered an updated reserve report that management anticipates publishing in Q4:22.
Progress Updates: Numerous Qualitative Updates
- For a range of updates during the period, refer to our previously published update notes:
Forecast, Valuation & Implied Return: Undemanding SOTPs
- Taking our Phase One & Phase Two DCF’s, Group overheads, factoring in debt, the recent share issue & (potential) future dilution, we arrive at a SOTPs for Renergen that indicates that the stock is worth 5,383cps (previously 5,093cps).
- Assuming Cryo-Vacc & Evander collectively add +10% value, this boosts our fair value to 5,922cps (previously 5,603cps).
- Finally, rolling this forward at our (nominal) Cost of Equity implies a 12m TP of 6,976cps (previously 6,567cps).
- We highlight the likelihood of Phase Two being larger than we anticipate as a risk to our valuation, but we will only update our view after several variables have been resolved.
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.