Senex Energy: Room to move
About the author:
- Author name:
- By Adrian Prendergast
- Job title:
- Senior Analyst
- Date posted:
- 21 October 2021, 7:30 AM
- Sectors Covered:
- Mining, Energy
- SXY reported a steady 1Q22 result, broadly close to our estimates.
- Sales gas volumes of 4.8PJ, vs MorgE 4.7PJ (+2% qoq).
- Atlas Stage 2 expansion underway, commissioning 1Q23.
- Net cash A$5m at quarter end.
- POSCO offer is close to our valuation, but SXY’s large 2P reserve base could justify a higher offer price.
- We maintain our Hold rating, with SXY trading around fair value.
A solid quarterly performance from SXY, with group gas production of 5.0PJ (+6% qoq) and sales volumes of 4.7PJ (vs MorgE 4.8PJ) +2% qoq. Supported by Roma North 1b incremental expansion.
1Q22 sales revenue A$35.4m (vs MorgE A$34.1m) came in ahead of our estimate on average realised gas price growth (+2% qoq to A$7.40/GJ).
Roma North Stage 2 remains ready for FID (final investment decision) with customer support for the development to drive sanctioning.
Net cash of A$5m, after the recent dividend payment and $9m capex with expansion drilling during the quarter.
This week it was announced that Korean steelmaker POSCO had approached SXY regarding a possible change of ownership transaction, with the current discussed non-binding offer at A$4.40ps.
SXY has granted an exclusivity period to POSCO giving the latter a chance to increase its offer post due diligence and possibly secure a recommendation for any offer from the SXY board.
While POSCO appears motivated to complete a transaction and secure at least 50.1% of SXY, at this stage there is no formal offer active.
The current non-binding proposal of A$4.40ps, is close to our A$4.30 valuation and prices SXY on an EBITDA multiple of 9.6x (vs peer average 6x). While SXY remains at a significant discount on an EV/2P reserve basis at A$1.04/GJe (vs peer average A$2.60/GJe).
Even adjusting for the higher capex requirement to fully develop CSG reserves vs conventional, we estimate an acquirer could pay an equivalent of A$1.50/GJe to acquire SXY and still keep its all-in cost of supply around A$5/GJe.
This in our view leaves the door open for a higher offer emerging from POSCO or potentially another interested party.
Forecast and valuation update
We have made small adjustments for the 1Q22 result.
No change in our valuation-based target price of (login to view).
With SXY trading in line with our target price we maintain our Hold rating.
POSCO discussions around change of ownership transaction.
Roma North Stage 2 FID.
Atlas expansion execution and ramp up.
POSCO discussions failing to yield a formal offer.
Execution risk around growth projects.
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