Renergen — ASX listing expected as funding is confirmed

Renergen (JP: RENJ)

Last close As at 27/03/2024

35.82

−2.48 (−6.48%)

Market capitalisation

4,433m

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Research: Energy & Resources

Renergen — ASX listing expected as funding is confirmed

2018 activity was slower than planned for Renergen as its expected funding of the Virginia LNG/helium project in South Africa was delayed due to a long period of economic and political volatility. However, with a recently completed rights issue that unlocks a pre-agreed debt facility, Renergen can now start to order key equipment. The macro environment is more favourable, with helium prices potentially higher after the cessation of public auctions of the US strategic helium reserve. Longer term, Renergen is looking to the Australian markets for additional share liquidity, with an Australian Stock Exchange (ASX) dual listing planned for 2019.

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Written by

Energy & Resources

Renergen

ASX listing expected as funding is confirmed

Funding update

Oil & gas

4 January 2019

Price

ZAR8.24

Market cap

ZAR825m

US$/ZAR=14.0

Net cash (ZARm) at 31 August 2018

6

Shares in issue

100.1m

Free float

27%

Code

RENJ

Primary exchange

JSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.8)

(9.2)

(16.0)

Rel (local)

(1.0)

(3.1)

(3.0)

52-week high/low

ZAR9.8

ZAR7.2

Business description

Renergen is an integrated alternative and renewable energy business that invests in early-stage alternative energy projects across Africa and emerging markets.

Next events

Debt facility drawdown

Q119

ASX listing

2019

LNG production start

H219

Analysts

Ian McLelland

+44 (0)20 3077 5756

Sanjeev Bahl

+44 (0)20 3077 5700

Carlos Gomes

+44 (0)20 3077 5700

Elaine Reynolds

+44 (0)20 3077 5713

Renergen is a research client of Edison Investment Research Limited

2018 activity was slower than planned for Renergen as its expected funding of the Virginia LNG/helium project in South Africa was delayed due to a long period of economic and political volatility. However, with a recently completed rights issue that unlocks a pre-agreed debt facility, Renergen can now start to order key equipment. The macro environment is more favourable, with helium prices potentially higher after the cessation of public auctions of the US strategic helium reserve. Longer term, Renergen is looking to the Australian markets for additional share liquidity, with an Australian Stock Exchange (ASX) dual listing planned for 2019.

Year end

Revenue (ZARm)

Adjusted EBITDA
(ZARm)

Reported net income
(ZARm)

Net (debt)/
cash (ZARm)

Cash from operations
(ZARm)

Capex
(ZARm)

02/17

2

(22)

(19)

12

(23)

(21)

02/18

3

(27)

(41)

3

(18)

(14)

02/19e

4

(35)

(41)

5

(31)

(107)

02/20e

27

(37)

(26)

(192)

(20)

(296)

Note: EBITDA normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Funding critical to getting project back on track

Funding uncertainty in 2018 has delayed ordering of long-lead items by c eight months vs our previous assumptions. However, the ZAR125m rights issue (c US$9m) has now closed, and this unlocks a pre-agreed ZAR218m debt facility. We estimate that to complete the Virginia project, Renergen will require c ZAR120m of additional funding, which we expect to come from a dual-listing on the ASX in 2019.

Project increasingly makes sense within SA context

Renergen’s Virginia project is seeking to substitute polluting diesel with liquefied natural gas (LNG) for a growing fleet of heavy-duty trucks in South Africa. The rationale for this appears to be increasingly compelling as end users seek to avoid increasing fuel costs at the pump, while domestic environmental legislation is likely to progressively favour cleaner fuels such as natural gas.

Helium macro environment potential upside

From a macro perspective, the main change in 2018 was the final auction from the US strategic helium reserve. This achieved prices of US$280/mcf and should underpin further price support for helium, although the market remains opaque and difficult to forecast. We embed an increase in helium prices from US$200/mcf to US$280/mcf in our valuation models.

Valuation: Increased to ZAR21.8/share

Our core NAV at a 15% discount rate increases from ZAR19/share to ZAR21.8/share, mainly as a result of the increased helium price assumptions and further weakness in the rand (it would have fallen to ZAR16.6/share without these adjustments). Offsetting this is more equity dilution than we had previously planned, additional costs of the rights issue and delays to the ramp-up of LNG/helium production.

Some slippage but project now moving forward

When we initiated on Renergen in March 2018 we expected the company to raise equity in Q218 to kick-start the placing of orders for its Tetra4 LNG/helium Virginia project. This would also start a gradual ramp-up in drilling from initially two wells per month in mid-2018 to six wells per month over a two-year period.

However, due to a period of significant economic and political volatility in South Africa, this fundraise has been delayed by six months. To overcome this the company has put in place an alternative funding package of a recently completed and fully underwritten rights issue that will be followed by a planned listing on the ASX in 2019.

Funding details

Renergen has issued 16.667m new shares via a fully underwritten rights issue (19.96747 rights shares for every 100 ordinary shares held) at ZAR7.5 per share, raising ZAR125m. In total, 14.85% of the rights were taken up by existing holders (55% of the pre-rights issue free float), with the balance taken up by Mazi Asset Management Property.

The rights issue was priced at a 9% discount to the 30-day volume-weighted average price; hence although the take up of the rights from existing holders is somewhat disappointing, the underwriting take up is not overly dilutive for investors. Following the finalisation of the rights offer, Mazi will hold 24.76% of Renergen’s share capital.

In combination with previous equity issues, the rights issue also satisfies the minimum equity raise required to unlock a previously agreed ZAR218m debt facility with the Industrial Development Corporation. The combination of the equity and debt we estimate will fund Renergen for all its Virginia development costs for the next 12 months.

To meet Renergen’s intended production ramp-up (including Edison assumptions), we estimate an additional ZAR120m of funding will be required. Renergen plans to list on the ASX in 2019 and we would expect some or all of the remaining equity required to be raised in this new market (Renergen has indicated it expects to raise a minimum ZAR50m on listing on the ASX).

ASX listing makes sense to increase liquidity

To give it more certainty over equity markets, Renergen has decided to look beyond its current JSE listing and has announced its intention to list on the ASX in 2019. The ASX listing makes sense, given the depth of the equity markets and familiarity with oil and gas investments.

Australia will also have some awareness of the helium opportunity; in January 2018 the private company Helium One, with an early-stage helium project in Tanzania, announced its intention to list on the ASX. However, there have been no further details on this to date.

Potential upside from both LNG and helium pricing

Renergen is seeking to ramp up production from its Virginia project at a time when there could be increasing prices for both LNG and helium in the South African domestic market.

LNG

LNG could become an increasingly attractive option for South African customers, both from an economic and a regulatory perspective. Until the recent drop in crude, fuel prices in South Africa were on a steady rise during 2018, with 93 octane unleaded fuel increasing from ZAR14.2 in January to ZAR16.8 in November. This was driven by a combination of increasing global oil prices and currency weakness (the rand weakened c 9% against the US dollar across the same period). This is sharpening the business case for Renergen’s target audience of heavy-duty truck owners to find alternative fuel options.

Coupled with this is an increase in pressure on corporate sustainability and more demanding climate-change policies as noted in Renergen’s most recent financial results. This is also likely to increase interest in customers moving away from traditional fossil fuels to cleaner fuels such as natural gas.

Helium

The year 2018 has been a landmark for helium markets with the final auction of the US strategic reserve to the private sector. The clamour for the last parcels to be released by the Bureau of Land Management (BLM) drove the auction price up 135% compared to the previous year to $280/mcf for Grade-A (or 99.99% purity helium). This contrasts with our previous long-term assumption for helium of $200/mcf in our initiation note.

Longer term the helium market remains opaque, largely because of the lack of clarity around global supply. Demand growth is likely to be relatively price inelastic (as shown by the BLM auction despite relatively loose current supply/demand dynamics) and any interruptions or delays are likely to only put upward pressure on prices. We have increased our long-term helium price assumptions to reflect this (see below).

Valuation and project assumptions

We assume a number of changes from our previous modelling of Renergen to reflect the following:

We push back our ramp up of the Virginia project by 12 months. This reflects the delay in funding of long-lead items by c six to eight months and an additional contingency given the company needs to navigate an ASX listing in 2019 and progress its flagship project.

We increase our base-case helium assumption from $200/mcf to $280/mcf in line with the most recent (and final) BLM auction. As discussed previously this is a crude assumption and there could be further volatility with helium prices for which we provide a sensitivity analysis in Exhibit 2.

We include the ZAR125m rights issue at ZAR7.5/share (we previously assumed this would be raised at a 10% discount to the prevailing share price of ZAR9/share). The additional equity we believe is required to maintain reasonable project progress (ZAR120m) we assume is raised at around the current share price (ZAR8.25/share) less a 10% discount. The result of these various issuances is additional dilution in our model (ultimate share count increases from 107.9m to 116.3m).

We move our long-term US dollar/rand exchange rate from 12 to 14 (reflecting the FX movement during 2018).

Based on the above assumptions, our core NAV at a 15% discount rate for Renergen moves from ZAR19.0/share to ZAR21.8/share, as shown in Exhibit 1.

Exhibit 1: Renergen valuation – diluted reflecting expected outstanding equity funding

Fully diluted share capital (post equity raises)

116.3m

 

Recoverable reserves

 

NPV/mcf 

Risked

Value per share (risked)

Asset

Country

Diluted WI

CoS

Gross

Net

NAV

ZAR/share

 

 

%

%

bcf

bcf

$/mcf

US$m

discount rate

 

 

 

 

 

 

 

 

15.0%

12.5%

10.0%

Net (debt)/cash - end August 2018

100%

100%

0.4

0.1

0.1

0.1

SG&A - NPV10 of three years

100%

100%

(6)

(0.8)

(0.8)

(0.8)

Equity raising of ZAR245m

100%

100%

18

2.2

2.2

2.2

Production/development

Virginia

South Africa

90%

70%

144.8

130.4

1.9

169

20.4

28.1

39.1

Core NAV

 

 

 

 

 

 

181

21.8

29.5

40.6

Source: Edison Investment Research. Note: *Chance of success (CoS) only reflects development uncertainty. NPV models contain assumption that only 60% of drilled wells will be economic, reflecting geological risk.

The main positive drivers for the valuation increase are the higher helium price and the higher assumed US dollar/rand exchange rate. Both have a profound effect on valuation as shown in the sensitivity table (Exhibit 2). With our previous assumptions of $200/mcf helium and US$/ZAR12 our core NAV would have been ZAR16.6, a 13% reduction from our previous valuation.

Exhibit 2: Core NAV sensitivity to exchange rates and helium prices

Helium price ($/mcf)

US$:ZAR

160

200

240

280

320

360

400

10

13.0

13.9

14.8

15.7

16.6

17.5

18.4

11

14.3

15.3

16.2

17.2

18.2

19.2

20.2

12

15.5

16.6

17.7

18.8

19.8

20.9

22.0

13

16.8

18.0

19.1

20.3

21.5

22.6

23.8

14

18.1

19.3

20.6

21.8

23.1

24.3

25.6

15

19.3

20.7

22.0

23.4

24.7

26.1

27.4

16

20.6

22.0

23.5

24.9

26.3

27.8

29.2

Source: Edison Investment Research

Financials: Additional funding still required

Our financial forecasts include both the ZAR125m rights issue and ZAR218m debt issuance in the current financial year ending February 2019.

The rights issue was largely taken up by the underwriter, Mazi Asset Management Property (85.15% of the ZAR125m) which represents a potential overhang for investors in the near term. Mazi had not entered into any lock-in agreements associated with the rights issue. However, we understand it has allocated the shareholding to its long-term portfolio and indicated to Renergen management that it intends to hold its stake for a number of years. The underwritten portion of the rights issue carried a fee of 5%, amounting (with costs) to an additional ZAR6.2m of costs to Renergen (over and above the c 9% discount to the prevailing 90-day VWAP). As a result of the rights issue, Mazi had the right to nominate a director to the Renergen board (Francois Oliveir was appointed in November).

Beyond this financial year, we estimate that to maintain a reasonable degree of progress with the Virginia development Renergen will require an additional c ZAR120m of funding, which we assume to be equity, in the financial year ending February 2020.

Exhibit 3: Financial summary

Accounts: IFRS, Year-end: February, ZAR000s

2016

2017

2018

2019e

2020e

2021e

2022e

INCOME STATEMENT

 

 

 

 

 

 

 

Total revenues

0

1,722

2,885

3,506

26,785

122,415

289,014

Cost of sales

0

(2,127)

(3,483)

(3,246)

(28,058)

(34,357)

(44,823)

Gross profit

0

(405)

(598)

260

(1,273)

88,059

244,191

SG&A (expenses)

(17,889)

(21,589)

(31,050)

(35,710)

(35,710)

(35,710)

(35,710)

R&D costs

0

0

0

0

0

0

0

Other income/(expense)

0

0

4,708

0

0

0

0

Exceptionals and adjustments

(1,518)

0

(12,359)

(1,654)

(3,000)

(3,000)

(3,000)

Depreciation and amortisation

(88)

(1,025)

(803)

(1,967)

(3,044)

(13,544)

(31,129)

Reported EBIT

(19,495)

(23,019)

(40,102)

(39,071)

(43,027)

35,804

174,352

Finance income/(expense)

2,942

1,279

597

336

16,576

1,807

2,336

Other income/(expense)

0

0

0

0

0

0

0

Exceptionals and adjustments

(2,946)

(3,156)

(3,532)

(1,931)

0

0

0

Reported PBT

(19,499)

(24,896)

(43,037)

(40,666)

(26,451)

37,612

176,688

Income tax expense (includes exceptionals)

0

6,234

2,436

0

0

(20,120)

(60,529)

Reported net income

(19,499)

(18,662)

(40,601)

(40,666)

(26,451)

17,492

116,159

Basic average number of shares, m

53

78

80

87

116

116

116

Basic EPS

(0.4)

(0.2)

(0.5)

(0.5)

(0.2)

0.2

1.0

Adjusted EBITDA

(17,889)

(21,994)

(26,940)

(35,450)

(36,983)

52,349

208,481

Adjusted EBIT

(17,977)

(23,019)

(27,743)

(37,417)

(40,027)

38,804

177,352

Adjusted PBT

(15,035)

(21,740)

(27,146)

(37,081)

(23,451)

40,612

179,688

Adjusted EPS

(0.3)

(0.2)

(0.3)

(0.4)

(0.2)

0.2

1.0

Adjusted diluted EPS

(0.3)

(0.2)

(0.3)

(0.4)

(0.2)

0.2

1.0

BALANCE SHEET

 

 

 

 

 

 

 

Property, plant and equipment

7,145

21,756

32,615

135,913

429,221

465,000

509,706

Goodwill

0

0

0

0

0

0

0

Intangible assets

61,504

75,453

65,838

67,765

67,765

67,765

67,765

Other non-current assets

0

6,234

10,303

12,699

12,699

12,699

12,699

Total non-current assets

68,649

103,443

108,756

216,377

509,685

545,464

590,170

Cash and equivalents

41,721

12,401

3,037

222,786

26,028

10,741

85,194

Inventories

0

0

0

0

0

0

0

Trade and other receivables

4,134

8,933

2,459

3,084

3,084

3,084

3,084

Other current assets

6,503

0

0

0

0

0

0

Total current assets

52,358

21,334

5,496

225,870

29,112

13,825

88,278

Non-current loans and borrowings

0

0

0

218,000

218,000

218,000

218,000

Other non-current liabilities

26,612

30,113

34,156

29,689

29,689

29,689

29,689

Total non-current liabilities

26,612

30,113

34,156

247,689

247,689

247,689

247,689

Trade and other payables

3,490

5,503

11,433

16,885

16,885

16,885

16,885

Current loans and borrowings

0

0

0

0

0

0

0

Other current liabilities

0

0

0

0

0

0

0

Total current liabilities

3,490

5,503

11,433

16,885

16,885

16,885

16,885

Equity attributable to company

98,828

98,423

80,948

191,417

287,967

308,459

427,618

Non-controlling interest

(7,923)

(9,262)

(12,285)

(13,744)

(13,744)

(13,744)

(13,744)

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Profit before tax

(19,499)

(24,896)

(43,037)

(39,180)

(26,451)

37,612

176,688

Net finance expenses

(2,942)

(1,279)

(597)

(336)

(16,576)

(1,807)

(2,336)

Depreciation and amortisation

88

1,841

2,822

1,967

3,044

13,544

31,129

Share based payments

1,518

0

114

1,500

3,000

3,000

3,000

Other adjustments

5,921

4,453

10,169

2,267

16,576

1,807

2,336

Movements in working capital

(6,266)

(3,254)

12,090

4,827

0

0

0

Interest paid / received

0

0

0

0

0

0

0

Income taxes paid

0

0

0

(2,153)

0

(20,120)

(60,529)

Cash from operations (CFO)

(21,180)

(23,135)

(18,439)

(31,108)

(20,407)

34,036

150,288

Capex

49,512

(20,714)

(13,861)

(107,396)

(296,351)

(49,323)

(75,835)

Acquisitions & disposals net

0

0

0

0

0

0

0

Other investing activities

0

0

0

0

0

0

0

Cash used in investing activities (CFIA)

49,512

(20,714)

(13,861)

(107,396)

(296,351)

(49,323)

(75,835)

Net proceeds from issue of shares

72,957

13,427

23,480

146,536

120,000

0

0

Movements in debt

0

0

0

218,000

0

0

0

Dividends paid

0

0

0

0

0

0

0

Other financing activities

(60,186)

1,102

558

(6,283)

0

0

0

Cash from financing activities (CFF)

12,771

14,529

24,038

358,253

120,000

0

0

Increase/(decrease) in cash and equivalents

41,103

(29,320)

(8,262)

219,749

(196,758)

(15,287)

74,453

Cash and equivalents at end of period

41,721

12,401

3,037

222,786

26,028

10,741

85,194

Net (debt)/cash

41,721

12,401

3,037

4,786

(191,972)

(207,259)

(132,806)

Movement in net (debt)/cash over period

41,721

(29,320)

(9,364)

1,749

(196,758)

(15,287)

74,453

Source: Company data, Edison Investment Research

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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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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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