Bowleven
Written by
Bowleven |
Buyback demonstrates confidence in asset base |
Share buyback |
Oil & gas |
19 August 2016 |
Share price performance
Business description
Next events
Analysts
Bowleven is a research client of Edison Investment Research Limited |
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Bowleven’s proposed $10m buyback of its shares shows management’s confidence in the value of its asset base and strength of balance sheet. With shares regularly trading near cash levels (and at a material discount to core NAV), the proposed $10m buyback would be accretive for NAV/share while not reducing the company’s cash position materially (given an additional $15m cash injection is expected in September) or limiting its ability to execute on its strategy. We have made a number of changes to our valuation, with core NAV rising from 45p to 46p/share. Our RENAV moves to 61p/share (from 60p/share). We note that these valuations have the potential to move up by 6% if the shares are bought back at a price of 22p/share.
Year |
Revenue |
PBT* |
Operating cash flow ($m) |
Capex |
Net cash |
06/15 |
0.0 |
(14.1) |
(10.4) |
35.1 |
144.8 |
06/16e |
0.0 |
(4.5) |
(14.0) |
38.9 |
92.5 |
06/17e |
6.4 |
(10.9) |
(4.9) |
39.0 |
63.8 |
06/18e |
14.4 |
(9.4) |
(0.5) |
6.0 |
82.6 |
Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Highly accretive to NAV/share
The shares have traded close to cash (and at a significant discount to our NAV) for some time, implying very little value for the Etinde and Bomono assets. The buyback is therefore strongly accretive to valuation and should highlight to investors the value of BLVN’s development and appraisal assets.
Etinde and Bomono developments ongoing
NewAge has identified a small-scale (75-100mmscfd) LNG plant with offshore processing as its preferred concept for Etinde (offering the most viable and time efficient option) and is in discussions with the government. Other concepts (fertiliser, gas to power and other LNG schemes) remain options, while the results of the carried Intra Isongo appraisal wells (due in 2017) have the potential to more than double the reserve base. Bomono development discussions are ongoing, with government EA approval the next milestone.
Valuation: Core NAV increases to 46p/share
We have made a number of changes to our valuation (including the effect of the weaker pound), which moves core NAV from 45p/share to 46p/share, while the RENAV moves from 60p/share to 61p/share. The buyback could add around 6% to these NAVs/share (depending on the share price at which the buyback is executed). There are uncertainties to the timing and concept of the Etinde development (where a small-scale LNG solution is now preferred), but with gross 2C contingent resources of 290mmboe and strong partners, the board has shown confidence in the long-term value of the company. We also note the carried appraisal wells (in early 2017) have the potential to more than double the resource base in the next six to nine months.
Little impact on strategy
We do not believe the buyback signals that the company will stop looking at acquisition opportunities in the current environment. Although the buyback is aimed at spending as much as $10m, even the full use of this sum would not dent financial flexibility. We note that Bowleven is due $15m at the end of September, so its capacity to make acquisitions is not reduced markedly.
Having said this, we expect the company to continue to be conservative with its cash, being careful not to overpay for any acquisitions. We see its withdrawal from the Aminex assets in Tanzania as evidence of its caution.
Impact of buyback
As approved at the AGM, the management is authorised to buy back up to 48,619,857 shares, representing 14.99% of the share capital of the company. The company has announced that it will seek to purchase up to $10m of shares, which represents around 10% of the current market cap. It sought approval to do this at the last AGM (and approval lasts until the next AGM).
Our modelling does not assume the buyback, but we set out below the degree of NAV/share impact based on various scenarios in which shares are bought and cancelled. This indicates that NAV/share could be boosted by up to c 6% depending on the number and price of shares bought back. Given the significant discount on which the shares trade (vs our NAV), the buyback is clearly accretive.
Exhibit 2: Accretion to core NAV/share, according to shares bought back and price paid
% of current share capital bought back |
2.5% |
5.0% |
7.5% |
10.0% |
|
Shares bought back |
8.2m |
16.4m |
24.5m |
32.7m |
|
Price, p/share |
20.0 |
1.4% |
3.0% |
4.6% |
6.2% |
22.0 |
1.3% |
2.7% |
4.2% |
5.8% |
|
24.0 |
1.2% |
2.5% |
3.9% |
5.3% |
|
26.0 |
1.1% |
2.3% |
3.5% |
4.8% |
|
28.0 |
1.0% |
2.0% |
3.1% |
4.3% |
|
30.0 |
0.9% |
1.8% |
2.8% |
3.8% |
Source: Edison Investment Research. Note: Grey shading indicates cases where the company would need to spend more than $10m in buying back the shares.
Financials
Bowleven’s balance sheet strength (of an estimated $93m net cash at end June 2016) allows it to make the proposed $10m buyback with little impact on its financial flexibility. The terms of the farm-out with NewAge/Lukoil guarantee Bowleven $15m at the end of September 2016. As a result, the company’s cash position would be stronger at the end of September than it is now, with the added bonus of a smaller share count.
The company remains well financed to invest in its existing asset base and new opportunities. The carry of the two appraisal wells on Etinde in early 2017 means little cash outflow is expected before the middle of 2017, while Bomono’s development plan of rented power gen units reduces upfront capex.
Exhibit 3: Financial summary
US$000s |
2013 |
2014 |
2015 |
2016e |
2017e |
2018e |
||
Year end June |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
Revenue |
|
|
0 |
0 |
0 |
0 |
6,411 |
14,355 |
Cost of Sales |
0 |
0 |
0 |
0 |
(2,190) |
(4,380) |
||
Gross Profit |
0 |
0 |
0 |
0 |
4,221 |
9,975 |
||
EBITDA |
|
|
(10,592) |
(11,604) |
(11,471) |
(10,196) |
(6,799) |
(1,596) |
Operating Profit (before GW and except.) |
|
|
(11,088) |
(12,025) |
(11,868) |
(10,837) |
(11,111) |
(9,581) |
Exceptionals |
0 |
0 |
(75,959) |
(133,458) |
15,000 |
25,000 |
||
Goodwill and intangible amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(11,088) |
(12,025) |
(87,827) |
(144,295) |
3,889 |
15,419 |
||
Net foreign exchange gain/(loss) |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Interest |
7 |
(1,577) |
(2,192) |
6,326 |
239 |
187 |
||
Profit Before Tax (norm) |
|
|
(11,081) |
(13,602) |
(14,060) |
(4,511) |
(10,872) |
(9,394) |
Profit Before Tax (FRS 3) |
|
|
(11,081) |
(13,602) |
(90,019) |
(137,969) |
4,128 |
15,606 |
Tax |
0 |
0 |
0 |
0 |
0 |
(851) |
||
Profit After Tax (norm) |
(11,081) |
(13,602) |
(14,060) |
(4,511) |
(10,872) |
(10,245) |
||
Profit After Tax (FRS 3) |
(11,081) |
(13,602) |
(90,019) |
(137,969) |
4,128 |
14,755 |
||
Average Number of Shares Outstanding (m) |
295 |
324.3 |
324.3 |
327.3 |
327.3 |
327.3 |
||
EPS - normalised (c) |
|
|
(3.8) |
(4.2) |
(4.3) |
(1.4) |
(3.3) |
(3.1) |
|
|
|
|
|
|
|
|
|
EPS - FRS 3 (c) |
|
|
(3.8) |
(4.2) |
(27.8) |
(42.2) |
1.3 |
4.5 |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
N/A |
N/A |
N/A |
N/A |
66% |
69% |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
-106% |
-11% |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
-173% |
-67% |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
533,437 |
551,446 |
306,558 |
212,886 |
247,573 |
245,589 |
Intangible Assets |
532,507 |
550,745 |
304,662 |
207,931 |
211,419 |
204,634 |
||
Tangible Assets |
930 |
701 |
1,896 |
4,955 |
36,155 |
40,955 |
||
Investments |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
52,150 |
42,351 |
212,029 |
161,861 |
133,201 |
151,935 |
Stocks |
11,023 |
10,404 |
5,370 |
6,500 |
6,500 |
6,500 |
||
Debtors |
16,385 |
6,493 |
6,431 |
7,500 |
7,500 |
7,500 |
||
Cash |
19,742 |
20,454 |
144,751 |
92,510 |
63,850 |
82,584 |
||
Other receivables |
5,000 |
5,000 |
55,477 |
55,351 |
55,351 |
55,351 |
||
Current Liabilities |
|
|
(15,568) |
(6,274) |
(12,695) |
(12,000) |
(12,000) |
(12,000) |
Creditors |
(15,568) |
(6,274) |
(12,695) |
(12,000) |
(12,000) |
(12,000) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
570,019 |
587,523 |
505,892 |
362,746 |
368,774 |
385,524 |
CASH FLOW |
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Operating Cash Flow |
|
|
(8,404) |
(8,576) |
(10,438) |
(13,956) |
(4,899) |
(453) |
Net Interest |
556 |
177 |
139 |
269 |
239 |
187 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(114,381) |
(18,037) |
(35,141) |
(38,876) |
(39,000) |
(6,000) |
||
Acquisitions/disposals |
0 |
0 |
160,688 |
0 |
0 |
0 |
||
Financing |
76 |
20,924 |
71 |
445 |
0 |
0 |
||
Other |
0 |
4,482 |
9,016 |
39 |
15,000 |
25,000 |
||
Net Cash Flow |
(122,153) |
(1,030) |
124,335 |
(52,078) |
(28,660) |
18,734 |
||
Opening net debt/(cash) |
|
|
(142,481) |
(19,742) |
(20,454) |
(144,751) |
(92,510) |
(63,850) |
Effect of FX changes |
(586) |
1,742 |
(38) |
(163) |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
(0) |
||
Closing net debt/(cash) |
|
|
(19,742) |
(20,454) |
(144,751) |
(92,510) |
(63,850) |
(82,584) |
Source: Edison Investment Research, Bowleven accounts. Note: This excludes the potential effects of the proposed buyback, which may reduce cash reserves by up to $10m and reduce the share count.
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