8.2% dividend yield secure at strip

Vermilion Energy 6 December 2018 Update
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Vermilion Energy

8.2% dividend yield secure at strip

Investor day

Oil & gas

 

6 December 2018

Price

C$33.7

Market cap

C$5139m

US$/C$1/30

Net debt (C$bn) at 30 September 2018

1.7

Shares in issue

152.5m

Free float

94%

Code

VET

Primary exchange

TSX

Secondary exchange

NYSE

Share price performance

%

1m

3m

12m

Abs

(4.6)

(19.4)

(24.4)

Rel (local)

(4.4)

(14.3)

(20.7)

52-week high/low

C$50.1

C$31.1

Business description

Vermilion Energy is an international E&P with assets in Europe, North America and Australia. Management expects FY18 production to average 86-90kboed after incorporating the acquisition of Spartan.

Next events

Q418 results

January 2019

Analysts

Sanjeev Bahl

+44 (0)20 3077 5700

Carlos Gomes

+44 (0)20 3077 5700

Elaine Reynolds

+44 (0)20 3077 5713

Vermilion Energy is a research client of Edison Investment Research Limited

Vermilion’s investor day highlighted its self-funded growth and income business model. Management’s commitment to providing shareholders a sustainable dividend is supported by a deep and diverse portfolio of assets resilient to a volatile commodity price environment. Project inventory supports a recycle ratio of over 2.5 times and the short-cycle nature of growth capex means spend can be rapidly diverted to projects that offer the highest returns or are curtailed. Our base case valuation falls to C$54.5/share (from C$57.9/share), largely driven by a global E&P sector de-rating. The share price is well supported by an 8.2% yield, which we believe is fully covered (in addition to growth capex) at c 20% below our base case commodity price forecasts for FY19.

Year end

Revenue (C$m)

EBITDA* (C$m)

Operating cash flow (C$m)

Net (debt)/ cash** (C$m)

Capex ex acquisitions (C$m)

Yield (%)

12/16

828.5

361.7

509.5

(1298.9)

242.4

4.5

12/17

1024.4

673.5

593.9

(1223.8)

320.4

5.7

12/18e

1534.6

693.2

876.0

(1716.2)

504.4

8.1

12/19e

1856.6

1169.9

1076.0

(1593.8)

527.6

8.2

Note: *Reported EBITDA includes hedging and FX gains/losses. **Net debt = long-term debt, short-term debt minus cash and equivalents.

Dividend secure; ability to flex growth capital

Based on our analysis, we believe both dividend and growth capital are secure at commodity prices up to 20% below our base case forecasts (20% below our base case implies a price deck of WTI US$51.9/bbl and Brent US$57.5/bbl for FY19). If average oil prices remain below these levels, we would expect management to restrict capital spend to projects that generate the highest returns, while maintaining leverage below 2.5 times net debt to fund flows from operations (FFO).

North American E&P sector de-rating

The Canadian E&P sector has de-rated by over 30% since our initiation on Vermilion in March 2018, which we believe is driven by a recent correction in the crude price and the huge disconnect at which Canadian heavy crudes trade relative to global benchmarks. We note that across Vermilion’s oil portfolio the volume weighted discount to WTI is just US$2/bbl, given its exposure to Brent and light sweet blends in North America.

Valuation: Base case C$54.5/share

Our updated valuation falls from C$57.9/share to C$54.5/share (down 6%) and is based on a blended approach using FY19 P/CF, EV/EBIDAX and multiple of free cash flow (FCF) plus NAV 5Y plan. Although we make modest changes to our FY19 FFO, down 1% at C$1201m, a key reason for the decline in our valuation is lower multiple ranges justified by a global E&P sector de-rating.

Key investor day key points

Vermilion Energy ran an investor day in Toronto on 27 November 2018, highlighting activity across its core operating business units that collectively drive the company’s strategy of self-funded growth and income. Vermilion retains a geographically diverse conventional/semi-conventional asset base with price exposure to a varied set of oil and gas commodity benchmarks. Importantly, unlike a number of its Canadian peers it has zero exposure to heavily discounted Western Canadian Select heavy crude, which trades a significant discount to WTI, and across the group Vermilion realises an average oil price at just c US$2/bbl discount to WTI. We believe the stock’s recent de-rating does not reflect the diversity of the company’s asset base and ability to continue to fund both dividend and growth capex based on commodity prices up to 20% below our base case forecasts.

We summarise eight key points from the Vermilion’s analyst day below:

Sustainability and HSE remain at the core

Ensuring the health and safety of employees is a core value of virtually every operator and Vermilion is no exception. Management emphasised the importance of both safety and environmental responsibility, flagging how business unit managers were obliged to ensure these factors always took priority over profitability. However, Vermilion’s disclosure of stage one and stage two emissions under the carbon disclosure product (CDP) set it apart from its listed peers, with disclosed data showing a continued reduction in emissions intensity. Vermilion reduced its emission intensity (scope one and scope two emissions) by 44% from 2014 through to 2017 with the CDP awarding the company an A rating, putting it in the top 4% of energy companies globally (based on the disclosures made to the CDP).

Capital efficiency

Vermilion Energy highlighted increasing capital efficiency across the group as it leverages a decline in service pricing and continues to benefit from increased operational efficiency including a material reduction in drilling days. An increase in FCF per share to our forecast FY19 C$4.4/share is significantly above levels seen during the last oil price peak (FCF is defined as FFO minus exploration and development (E&D) capex and does not include inorganic capex associated with the acquisitions). FCF remains heavily geared to commodity price assumptions but even at current strip Vermilion expects FCF for FY19 to exceed C$3.0/share. Assuming prevalent commodity price volatility constrains service price cost inflation, we believe current levels of capital efficiency should be sustainable at least in the short term.

Exhibit 1: Growth in FCF per share*

Source: Vermilion Energy. Note: *Company estimates at 19 November 2018 based on strip pricing at FY19 FCF/share of c C$3.0share.

Growth capital at risk if commodity prices fall; dividend secure

Management flagged the order of priority for the use of FCF in the event of sustained lower commodity prices. Importantly for income investors, growth capital is likely to be curtailed ahead of a dividend reduction (Vermilion’s dividend has never been reduced before). We take a look at dividend coverage in the event that oil prices remain at current strip or fall further later in this note. Our base case uses an EIA short-term commodity price forecast for FY19 FFO of C$1,201m; under this scenario, total forecast capex of C$528m and gross dividend of C$422m are fully covered.

Bias towards onshore, short-cycle assets provide for significant capital flexibility

Vermilion’s FY19 capital programme and five-year outlook is dominated by incremental investment in existing assets (facility modifications and workovers) and by onshore drilling activity rather than large one-off capital projects. These short-cycle investments will offer significant flexibility if commodity prices fall. This dynamic portfolio of investment opportunities enables Vermilion to re-direct capital to those that offer the greatest return at any specific point in the commodity cycle.

Central and Eastern Europe (CEE) exploration, appraisal and redevelopment underappreciated

While we place little value on Vermilion’s net acreage position and prospective resource in the CEE region, the company holds an extensive land position and is working up prospects in proven basins. Vermilion’s interest in Hungary totals 664,000 acres and a discovery made in February 2018 (tested at 5.8mmscfd) is already in commercial production. Several analogues have been mapped on 3D seismic, including the compelling Dombirotos-1 prospect, which is due to drilled in Q119.

Exhibit 2: South Battonya Dombiratos prospect – strong AVO response

Source: Vermilion Energy

Vermilion is now the largest onshore exploration licence holder in Croatia with 2.35m net acres. A proven oil play extends across Vermilion’s acreage, which remains relatively unexplored by modern technology. Vermilion also sees potential for a shallow gas play analogous to the Pannonian sandstone in Hungary. In Slovakia Vermilion has exposure to a low-risk redevelopment play with five dry gas fields located on its Tmava exploration licence and several un-drilled fault-blocks located on 3D seismic. Drilling in Hungary, Croatia and Slovakia is expected in 2019 and management sees potential to take CEE net production from c 0.6kboed today to over 5kboed by 2023.

Deep project inventory

Vermilion retains a deep inventory of drilling locations, which has more than doubled since the acquisition of Spartan in 2018. Although from a numerical perspective drilling inventory is dominated by locations that target North American crude, a number of the highest return and shortest payback opportunities target gas in Europe. A recent pull-back in WTI should further elevate European gas projects in the group’s ranked drilling inventory. Three-year 2P finding and development (F&D) and reserve acquisition costs of C$8.87/boe are competitive versus peers and enable a strong return on capital with a 2017 F&D operating recycle ratio (operating netback divided by F&D cost) of 2.8x.

Exhibit 3: Unrisked net well locations

Source: Vermilion Energy

Compelling European gas fundamentals

Despite a recent dip in global crude prices, European gas prices have remained at multi-year highs and are likely to rise as we enter the Northern hemisphere’s winter. Key drivers of recent price strength include declining domestic production, strong demand as conventional coal is displaced and in support of intermittent renewable sources. Coal to gas switching provides support at c US$7.5mmbtu, a floor that has risen over 2018 due to a spike in EU carbon prices. Spot Asian LNG prices c stand at c US$10/mmbtu and Europe is likely to attract spot cargoes if TTF is priced close to this, providing for a price cap. Strong margins from European gas sales will soften the blow of a recent dip in global crude prices.

Key growth areas in 2019 – driven by recent acquisitions

Key growth areas in 2019 include Netherlands gas, Canada and the US on inclusion of a full year of production from acquired assets. Canadian drilling is focused on Saskatchewan light oil and Lower Mannville condensate rich gas. Management sees potential to enhance net-back through the reduction of unit operating costs of the Spartan assets as operational teams are re-organised and combined with Vermilion’s legacy Saskatchewan workforce. Depressed service costs and operational efficiencies, including a significant and sustainable reduction in drilling days, provide strong returns even in a US$55/bbl WTI oil price environment with company forecast after-tax payouts of 1.2 to 1.6 years (IRRs in excess of 50%). US production growth is driven by the August 2018 acquisition of a land position in the Powder River Basin, with in-fill potential in the Turner sandstone targeting light oil. Returns are again attractive with company forecast after-tax payouts of 1.7 to 1.9 years and IRRs in the 44% to 55% range. Our production forecast for FY19 of 101kboed is towards the lower end of company guidance of 101–106kboed.

Exhibit 4: Production by commodity benchmark

Exhibit 5: Production by geography

Source: Edison Investment Research, Vermilion Energy

Source: Edison Investment Research, Vermilion Energy

Exhibit 4: Production by commodity benchmark

Source: Edison Investment Research, Vermilion Energy

Exhibit 5: Production by geography

Source: Edison Investment Research, Vermilion Energy

Dividend coverage and sensitivities
Ability to sustain growth and distributions

Vermilion’s ability to sustain historic levels of growth in production, reserve/resource additions and servicing debt and dividend payouts relies on it generating sufficient levels of cash flow from operations. Management is keen to stress that growth capital is likely to be curtailed ahead of a reduction in dividend if the company is free-cashflow negative. We assume leverage is capped at net debt to FFO of 2.5 times in our sensitivity analysis.

At 20% below our base case commodity price forecasts (FY19e FFO of C$809m), we believe FCF post-maintenance capex still covers Vermilion’s dividend but not 100% of estimated growth capital. Nevertheless, assuming capex spend is unchanged we still expect to see net debt to FFO at c 2x in FY19. We feel this scenario is sustainable and the dividend is secure. A material reduction in growth capital is unlikely given Vermilion’s balance sheet and strong returns generated on high-graded investment options.

Exhibit 6: 20% reduction in base case commodity price forecasts*

Source: Edison Investment Research. Note: *20% below equates to WTI US$51.9/bbl, Brent US$57.5/bbl, TTF C$5.8/GJ

At 30% below our base case commodity price forecast (C$614m FFO), the reduction in FCF is more dramatic and whilst we believe FCF after maintenance capex will cover 70% of gross dividend a significant increase in financial leverage would be required in order to fund growth capex. In the event of capex being sustained leverage is likely to rise to c 2.9 times net debt to FFO. In this case we believe that growth capex is likely to be reduced on lower return projects, or completely curtailed if management believe a lower commodity price is likely to be sustained. In summary, we believe at current spot prices dividend, maintenance capex and growth capex is likely to be sustained. However, if oil prices are at an average WTI c US$50/bbl in 2019 we could see a material reduction in growth capex.

Exhibit 7: 30% reduction in base case commodity price forecasts *

Source: Edison Investment Research. *30% below equates to WTI US$45.4/bbl, Brent US$50.3/bbl, TTF C$4.4/GJ

FY18/19 forecast update
Key changes to forecasts

The table below highlights key changes to our forecasts for FY18 and FY19, which reflect actuals through to Q318 and updated production and commodity price expectations for FY19. We use EIA last-published WTI and Brent forecasts for FY19 of US$64.9/bbl and US$71.9/bbl respectively and a long-term oil price of Brent US$70/bbl. Our base case NBP and TTF assumptions for FY19 are C$9/mmbtu and C$9.5/GJ. Our oil price forecasts are above the futures strip, hence we address valuation later in this note and provide sensitivities to these underlying assumptions.

Exhibit 8: Old versus new forecasts

 

New

Old

Change

C$m

2017

2018e

2019e

2018e

2019e

2018e

2019e

Production

68.0

86.4

101.1

88.4

108.4

(2%)

(6%)

Revenues

1,024.4

1,534.6

1,856.6

1,558.0

1,920.3

(1%)

(3%)

843.2

1,205.9

EBIDAX

638.2

715.6

1,237.2

804.6

1,147.6

(11%)

8%

FFO

602.6

833.4

1,200.6

945.8

1,208.3

(12%)

(1%)

CFPS

4.8

5.7

7.0

5.5

7.3

4%

4%

Capex ex acquisitions

320.4

504.4

527.6

502.3

563.2

0%

(6%)

Source: Edison Investment Research

Relative valuation: North American E&P de-rating

Vermilion Energy has seen a significant de-rating relative to the global E&P sector, brought down by a Canadian E&P sector collapse. Since our March 2018 initiation, its Canadian peers have de-rated from 5.8x FY19 P/CF to just 4.0x (down 31%); this compares to a de-rating of 9.8% across our global peer group of 85 companies. We feel Vermilion’s relative diversification and minimal exposure to heavily discounted Canadian heavy crudes should provide a basis for it to trade more in line with its global peers.

In aggregate, Vermilion’s crude is priced at a US$2/bbl discount to WTI, with 36% of oil production price referenced to Brent and North American crudes including light sour blend, mixed sweet blend and Powder River Basin crude trading at a substantial premium to Western Canadian Select.

Exhibit 9: Average P/CF multiples for FY18e and FY19e (as of March 2018)

Exhibit 10: Average P/CF multiples for FY18e and FY19e (current)

Source: Edison Investment Research, Bloomberg. Note: US = US, CN = Canada, IN = India, HK = Hong Kong, RM = Russia, NO = Norway, LN = UK, AU = Australia, JP = Japan, SS = Sweden.

Source: Edison Investment Research, Bloomberg

Exhibit 9: Average P/CF multiples for FY18e and FY19e (as of March 2018)

Source: Edison Investment Research, Bloomberg. Note: US = US, CN = Canada, IN = India, HK = Hong Kong, RM = Russia, NO = Norway, LN = UK, AU = Australia, JP = Japan, SS = Sweden.

Exhibit 10: Average P/CF multiples for FY18e and FY19e (current)

Source: Edison Investment Research, Bloomberg

Vermilion remains a stand-out company on the basis on dividend yield, lower financial gearing and strong growth.

Exhibit 11: Vermilion versus E&P 85-company peer group on valuation, growth, leverage and yield metrics

Source: Bloomberg, Edison Investment Research

Edison valuation: C$54.5/share on lower multiple range

We look across a peer group of 85 global listed E&Ps to establish comparable multiples and operational metrics for companies with similar levels of production and market capitalisation. We find that on the basis of 2019e cash flow (Bloomberg consensus) valuations range from 2x P/CF up to 12x depending on the companies’ growth profiles, development pipelines, contingent resource bases and the extent of financial leverage. Given this wide range in peer group cash flow multiples, we have valued Vermilion on the basis of levered and unlevered cash flow metrics, using the Gordon’s growth dividend discount model and a SOTP valuation that incorporate maintenance FCF and the NPV of identified growth projects. Our valuation ranges from an average low of C$40.5/share to an average high of C$54.5/share, with an average midpoint of C$47.5/share. We believe Vermilion should trade towards the top end of this range based on its defensive qualities, high netbacks, low F&D costs and OECD operations with low subsurface risk. We have reduced the multiple ranges we use in our valuation to reflect a recent global sector de-rating.

Exhibit 12: Average P/CF multiple by exchange for selected peer group

Exhibit 13: Valuation range

Source: Edison Investment Research, Bloomberg consensus data. US = US, CN = Canada, IN = India, HK = Hong Kong, RM = Russia, NO = Norway, LN = UK, AU = Australia, JP = Japan, SS = Sweden.

Source: Edison Investment Research

Exhibit 12: Average P/CF multiple by exchange for selected peer group

Source: Edison Investment Research, Bloomberg consensus data. US = US, CN = Canada, IN = India, HK = Hong Kong, RM = Russia, NO = Norway, LN = UK, AU = Australia, JP = Japan, SS = Sweden.

Exhibit 13: Valuation range

Source: Edison Investment Research

Valuation commodity price sensitivity

A key sensitivity to our group valuation is the benchmark commodity price for FY19e. Exhibit 14 below indicates this sensitivity by flexing our commodity price inputs for 2019 by ±30%. Our valuation varies from C$34.8/share to C$73.3/share over this range, with the market implied discount to our commodity price deck for 2019 at c 38%.

Exhibit 14: Valuation sensitivity to commodity price input for FY19 (base case in bold)

Brent/(US$/bbl)

50.3

57.5

64.7

71.9

79.1

86.3

93.5

WTI/(US$/bbl)

45.4

51.9

58.4

64.9

71.3

77.8

84.3

NBP (C$/mmbtu)

6.3

7.2

8.1

9.0

9.9

10.8

11.7

AECO (C$/GJ)

1.1

1.2

1.4

1.5

1.7

1.8

2.0

TTF (C$/GJ)

6.7

7.6

8.6

9.5

10.5

11.4

12.4

-30%

-20%

-10%

0%

10%

20%

30%

C$/share

34.8

41.2

47.9

54.5

60.9

67.1

73.3

Source: Edison Investment Research

 

Exhibit 15: Financial summary

C$m

 

2016

2017

2018e

2019e

2020e

Dec

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

Revenue

 

 

 

829

1,024

1,535

1,857

1,879

Cost of Sales

 

 

(262)

(286)

(412)

(536)

(536)

Gross Profit

 

 

567

739

1,122

1,321

1,344

EBITDA

 

 

 

362

673

693

1,170

1,193

Operating Profit (before amort. and except.)

 

(166)

182

79

423

461

Intangible Amortisation

 

0

0

0

0

0

Exceptionals

 

 

0

0

0

0

0

Other

 

 

 

0

0

0

0

0

Operating Profit

 

 

(166)

182

79

423

461

Net Interest

 

 

 

(57)

(57)

(68)

(72)

(67)

Profit Before Tax (norm)

 

(223)

124

11

351

394

Profit Before Tax (FRS 3)

 

(223)

124

11

351

394

Tax

 

 

 

63

(62)

(18)

(35)

(39)

Profit After Tax (norm)

 

 

(243)

104

(13)

316

355

Profit After Tax (FRS 3)

 

 

(160)

62

(7)

316

355

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

116

121

141

153

153

EPS - normalised (C$/share)

 

(2.1)

0.9

(0.1)

2.1

2.3

Dividend per share (C$/share)

 

2.6

2.6

2.7

2.8

2.8

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

68

72

73

71

71

EBITDA Margin (%)

 

 

44

66

45

63

63

Operating Margin (before GW and except.) (%)

 

(20)

18

5

23

25

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

Fixed Assets

 

 

3,861

3,713

5,557

5,337

5,166

Intangible Assets

 

 

275

293

314

354

374

Tangible Assets

 

 

3,433

3,338

4,985

4,725

4,534

Investments

 

 

153

82

258

258

258

Current Assets

 

 

226

262

313

384

383

Stocks

 

 

 

15

17

28

28

28

Debtors

 

 

 

132

166

248

248

248

Cash

 

 

 

63

47

13

83

82

Other

 

 

 

17

32

25

25

25

Current Liabilities

 

 

(291)

(363)

(630)

(630)

(630)

Creditors

 

 

 

(218)

(258)

(429)

(429)

(429)

Other short term liabilities

 

(73)

(105)

(201)

(201)

(201)

Long Term Liabilities

 

 

(2,218)

(2,069)

(2,757)

(2,636)

(2,455)

Long term borrowings

 

 

(1,362)

(1,270)

(1,729)

(1,677)

(1,561)

Other long term liabilities

 

(856)

(798)

(1,028)

(959)

(894)

Net Assets

 

 

 

1,578

1,543

2,484

2,455

2,464

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

Operating Cash Flow

 

 

510

594

876

1,076

1,102

Capex

 

 

 

(242)

(320)

(504)

(528)

(560)

Acquisitions/disposals

 

(99)

(28)

(308)

0

0

Financing

 

 

 

(17)

(4)

(5)

(22)

(22)

Dividends

 

 

 

(105)

(200)

(331)

(404)

(406)

Net Cash Flow

 

 

47

41

(271)

122

115

Opening net debt/(cash)

 

1,346

1,299

1,224

1,716

1,594

HP finance leases initiated

 

0

0

0

0

0

Other

 

 

 

0

34

(221)

0

0

Closing net debt/(cash)

 

 

1,299

1,224

1,716

1,594

1,479

Source: Company data, Edison Investment Research

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Vermilion Energy prepared and issued by Edison, in consideration of a fee payable by Vermilion Energy. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Australia

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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