Canacol Energy — Q2 results deliver strong operating cash flow

Canacol Energy (TSX: CNE)

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Research: Oil & Gas

Canacol Energy — Q2 results deliver strong operating cash flow

Canacol reported EBITDAX of US$55.2m for Q222, up 24% compared to Q221 due to a 29% increase in natural gas revenues as a result of both increased production and average sales prices. This resulted in strong operating cash flow, with funds from operations up 16% to US$39.1m (Q221: US$33.6m). A non-cash deferred tax expense led to a net loss of US$6.4m for the quarter due to the impact of the weakening Colombian peso on unused tax losses and cost pools. The 2022 drilling programme of up to 12 wells is progressing, with six wells successfully completed to date and the high-impact Pola-1 well to be spudded by year-end. Meanwhile, the new Colombian government is expected to change the country’s energy transition plans, having stood on a platform of ending new oil contracts. Finance Minister José Antonio Ocampo has, however, spoken of the importance of natural gas. In our view, the value of gas as a transition fuel increases with an accelerated shift away from oil and coal.

James Magness

Written by

James Magness

Director, Energy & Resources

Oil & Gas

Canacol Energy

Q2 results deliver strong operating cash flow

Q222 results update

Oil and gas

6 September 2022

Price

C$2.42

Market cap

C$413m

C$1.25/US$

Net debt (US$m) at 30 June 2022

453

Shares in issue

170.9m

Free float

60%

Code

CNE

Primary exchange

TSX

Secondary exchange

BVC

Share price performance

%

1m

3m

12m

Abs

(3.3)

(27.2)

(30.2)

Rel (local)

(1.6)

(21.4)

(24.6)

52-week high/low

C$4.08

C$2.22

Business description

Canacol Energy is a natural gas exploration and production company primarily focused on Colombia.

Next events

2022 drilling

Ongoing

Pola-1 well spud

By Q422

3D seismic

Q422

Analysts

James Magness

+44 (0)20 3077 5756

Elaine Reynolds

+44 (0)20 3077 5713

Canacol Energy is a research client of Edison Investment Research Limited

Canacol reported EBITDAX of US$55.2m for Q222, up 24% compared to Q221 due to a 29% increase in natural gas revenues as a result of both increased production and average sales prices. This resulted in strong operating cash flow, with funds from operations up 16% to US$39.1m (Q221: US$33.6m). A non-cash deferred tax expense led to a net loss of US$6.4m for the quarter due to the impact of the weakening Colombian peso on unused tax losses and cost pools. The 2022 drilling programme of up to 12 wells is progressing, with six wells successfully completed to date and the high-impact Pola-1 well to be spudded by year-end. Meanwhile, the new Colombian government is expected to change the country’s energy transition plans, having stood on a platform of ending new oil contracts. Finance Minister José Antonio Ocampo has, however, spoken of the importance of natural gas. In our view, the value of gas as a transition fuel increases with an accelerated shift away from oil and coal.

Year end

Revenue* (US$m)

Adjusted EBITDAX**(US$m)

Cash from
operations (US$m)

Net debt***
(US$m)

Capex
(US$m)

Dividend
yield (%)

12/20

247

188

152

299

89

5.5

12/21

250

194

124

356

101

6.0

12/22e

272

209

169

450

184

8.9

12/23e

310

246

186

519

189

8.9

Note: *Revenue net of transport expenses and royalties. **Adjusted EBITDAX is before non-recurring or non-cash charges and exploration expenses. ***Cash and equivalents minus short- and long-term debt.

Change of government

Colombia’s new left-wing government was inaugurated in August 2022, with President Gustavo Petro pledging to end new oil contracts in the country as part of its energy transition plans and the minister for mining and energy also announcing an end to new gas contracts. In contrast, Ocampo, the finance minister and an economist whose appointment is designed to calm markets, takes a more positive view of gas on the basis that it will be critical as a transition fuel.

470bcf Pola-1 to spud by end-2022

Canacol holds 11 contracts across Colombia, with gross mean risked prospective resources of 7.6tcf across 178 prospects and leads, and will investigate further larger features identified on 2D seismic with a 470km2 3D seismic programme planned for this year. The Pola-1 well will be the first well to test new acreage in the Middle Magdalena Valley, and will target 470bcf (cf 2P reserves of 607bcf), so if successful will be transformational for the company.

Valuation: Significantly undervalued

Our total net asset value (NAV) is based on a combination of 2P reserves and additional ‘to be developed’ risked reserves that we expect to be added over the next five years. We calculate the core NAV at C$2.29/share (previously C$2.24/share), to which we add C$4.08/share for additional risked reserves to arrive at our valuation of C$6.36/share, more than double the current share price. We believe the share price does not fully reflect the potential upside from exploration.

New government, new transition policy

Colombia’s new left-wing government took over from the outgoing right-wing administration in August 2022. President Gustavo Petro was elected on a platform that included transitioning the country from fossil fuels to renewables through a policy of not awarding any new Colombian oil contracts. The appointment of philosopher and university professor Irene Vélez Torres as minister for mines and energy would appear to back up this commitment, given her background in socio-environmental conflicts. Since her appointment she has said that the government will grant no new gas exploration contracts and could import gas from Venezuela if reserves from existing projects are not sufficient to manage the transition. Vélez Torres has subsequently acknowledged the importance of natural gas and maintaining self-sufficiency for Colombia. Imports from Venezuela would be problematic since the Venezuelan state oil company Petróleos de Venezuela (PDVSA) is subject to US sanctions, although US officials have been in discussions with the Venezuelan government this year as part of attempts to mitigate the impact of the Russian invasion of Ukraine on oil prices.

This potential shift in policy is, however, balanced by the more moderate views of the new finance minister, José Antonio Ocampo, who has stated that, although the government will halt oil exploration, gas exploration will be required as a transitional energy source and as such will continue to be required. In our view, the importance of gas as a transition fuel increases with an accelerated shift away from oil and coal. Ocampo is an experienced economist whose appointment is seen as a signal to reassure markets. He has served as finance minister and agriculture minister in the past and has experience working at the UN and Banco de la República (Colombia’s central bank).

Canacol has plenty of running room within its existing acreage. The company holds 11 exploration and production contracts in Colombia, with five in the core producing Lower Magdalena Valley (LMV) and six in the new high-impact Middle Magdalena Valley (MMV). The company has identified 178 prospects and leads across this acreage, which was independently verified to hold gross mean risked prospective resources of 7.6tcf (unrisked 20.5tcf) by Boury Global Energy Consultants as of December 2021. The bulk of these prospective resources, 6.6tcf, sit in the MMV and is currently untested, but will be crucial to maintaining the company’s goal of maintaining a 2P reserves replacement ratio of 200%. Canacol’s first test of this new area will be the Pola-1 exploration well, due to spud by the end of 2022. The well is targeting 470bcf of mean gross risked prospective resources. Success here would be transformational for the company, given that existing 2P reserves are 607bcf.

2022 drilling programme: 100% success to date

Canacol’s 2022 drilling programme is continuing successfully, with all six wells drilled to date (three development and three exploration wells) encountering gas (Exhibit 2). The Claxon 1 exploration well is currently drilling and is located approximately two kilometres to the south of the recently announced Alboka 1 discovery, which tested 33mmscfd from the primary Cienaga de Oro (CDO) sandstone reservoir. Claxon 1 will target the same CDO sandstone reservoirs present at Alboka, and the company estimates that the well will take approximately four weeks to drill, complete and test. Cornamusa 1 has been tied into production and tested at 12.4mmscfd. The second rig is being mobilised to drill the Canaflecha 2 development well, located on the Esperanza E&E contract (in which Canacol has 100% working interest). The company expects the well to spud in August 2022 and is targeting gas within the CDO in the Canaflecha field, which was discovered in 2008.

Exhibit 1: Canacol acreage

Source: Canacol Energy

The first exploration well to be drilled in the MMV, the high-impact Pola-1 well, is due to spud before the end of 2022 and will take c four months to drill. We discussed Pola-1 together with further future high-impact wells Natilla-1 and Dividivi-1 in detail in our May 2022 Outlook note.

Exhibit 2: 2022 drilling programme

Well

Block

Type

Result

Toronja-2*

VIM-21

Development

Gas

Carambolo-1*

VIM-21

Exploration

Gas

Chirimia-1 ST*

VIM-5

Development

Gas

Alboka-1*

VIM-5

Exploration

Gas

Cornamusa-1*

VIM-21

Exploration

Gas

Toronja-3*

VIM-21

Development

Gas

Claxon-1*

VIM-5

Development

Canaflecha-2

Esperanza

Exploration

Pola-1

VMM 45

Exploration

Source: Canacol Energy. Note: *Wells drilled/underway


Valuation and financials

Q2 results deliver strong operating cash flow

Canacol reported Q222 EBITDAX of US$55.2m, an increase of 24% compared to Q221 (US$44.6m). This was assisted by a 29% increase in natural gas revenues to US$67.9m in Q222 (Q221: US$52.6m), which was due to an increase in production and average sales prices. This resulted in strong operating cash flow, with funds from operations increasing by 16% to US$39.1m (Q221: US$33.6m). The average sales price for Q222 was US$4.73/mcf, 16% above Q221 (US$4.09/mcf), assisted by a tighter spot market. Due to increased sales in the spot market, volumes sales (and production) for Q2 were also strong at 188mmscfd, up by 10% on Q221 (c 171mmscfd). As such, we have tweaked upwards our price forecasts for FY22–24 (by 1%) and increased our FY22 volume sales forecast to 190mmscfd, from 185mmscfd previously, which is still comfortably within the company’s guidance range of 160–200mmscfd. We note that the run rate for volumes sales over January to July is nearly 5% higher than the same period a year earlier.

A non-cash deferred tax expense of US$12m led to a net loss of US$6.4m for the quarter, compared to net income of US$2.4m in Q221. The deferred tax expense was due to the impact of a weakening Columbian peso (relative to the US dollar) on unused tax losses and cost pools. We do not adjust our full-year tax forecast as this expense offsets a US$12m deferred tax credit incurred in Q122, which we did not adjust for in our previous forecasts as we had assumed it would reverse out before the year-end. Net capex for the quarter was US$46.5m, resulting in net debt (for covenant purposes) of c US$463m at the end of Q222, implying net debt to EBITDAX of 2.2x (roughly in line with Q122). This includes cash of c US$91m. The company also reported a working capital surplus of c US$101m

Exhibit 3: Old versus new valuation and forecasts

New

Old

Difference

Comment

Valuation (C$/share)

Adjustments

-3.63

-3.63

0%

Producing assets

5.92

5.87

1%

Increased volume sales and pricing

Core NAV

2.29

2.24

2%

Additional reserves

4.08

4.05

1%

Increased production implies higher additional reserves (at 200% RRR*)

Valuation

6.36

6.29

1%

Financial extracts (US$m, unless otherwise stated)

FY22e

Production (mmscfd)

190

185

3%

Strong sales over May-July increases run rate

Pricing (US$/mmscfd)

4.72

4.67

1%

Strong interruptible spot sales prices in Q2

Revenue

272

263

4%

Higher production/volumes sales

EBITDAX

209

200

5%

Higher revenue

CFO

169

162

5%

Higher cash earnings (EBITDAX)

Capex

184

180

2%

Higher production

FY22–25e

Production

852

846

1%

Ripple effect of higher production in FY22

Capex

739

734

1%

Higher production (at same F&D costs per mscf)

Source: Edison Investment Research. Note: *RRR = reserves replacement ratio.

Implications for NAV

Our core NAV for Canacol increases C$2.29/share from C$2.24/share, as a result of the changes to our forecasts for volume sales and prices. Our additional 2P reserves valuation increases slightly to C$4.08 from C$4.05, giving a total NAV of C$6.36 (from C$6.29 previously). The breakdown of our valuation is shown below.

Exhibit 4: Base case valuation

Asset

 

Recoverable reserves

 

Net risked value

Country

Diluted WI

CoS

Gross

Net WI

 

NPV

Absolute

C$/share**

 

%

%

bcf

bcf

US$/mcf

US$m

Net (debt)/cash end FY21*

(369)

(2.58)

SG&A - NPV of 5 years

(161)

(1.12)

Decommissioning provisions

(26)

(0.18)

Cash in from assumed exercise of options

35

0.25

Producing assets

Esperanza

Colombia

100%

100%

190

190

1.33

254

1.77

VIM 21

Colombia

100%

100%

57

57

2.09

118

0.82

VIM 5

Colombia

100%

100%

360

360

1.32

476

3.32

Core NAV

 

 

 

607

607

 

 

328

2.29

Exploration/development upside

5-year programme (assumes 200% RRR)

 

100%

100%

746

746

 

0.78

584

4.08

Total NAV

 

 

 

1,353

1,353

 

 

911

6.36

Source: Edison Investment Research. Note: *Adjusted for shares repurchased since year-end. **We use fully diluted number of shares of 179.1m.

We have used a generic discount rate of 12.5% in our valuation. This is in line with that used for funded, cash-generative E&Ps with operations in emerging markets, resulting in our valuation of C$6.36/share. At a 10% discount rate, it would increase to C$7.02/share. We provide a sensitivity to this key input below.

Exhibit 5: 2P and risked exploration NAV sensitivity (C$/share) to WACC

8.0%

10.0%

12.5%

15.0%

2P NAV

3.57

2.95

2.29

1.73

Risked NAV

7.64

7.02

6.36

5.81

Source: Edison Investment Research

Relative valuation

Canacol trades at a P/CF multiple of 2.6x in FY22e and 2.2x in FY23e compared to its Canadian (junior) E&P peers on 2.7x and 2.4x, respectively, and its North American E&P peers with South American operations on 1.5x and 1.3x, respectively. North American E&P peers with South American operations include Frontera Energy, Gran Tierra, Parex Resources, Petro

Exhibit 6: Peer group valuation

Market cap (US$m)

EV (US$m)

P/CF FY22e (x)

P/CF FY23e (x)

EV/EBITDA FY22e (x)

EV/EBITDA FY23e (x)

FCF Yield FY22e (%)

FCF Yield FY23e (%)

Div yield FY22e (%)

Prod growth FY23e (%))

EV/kboed FY22e (x)

Canacol Energy Ltd

303

724

2.67

2.21

3.51

3.04

-8%

9%

6%

8%

21.5

N American E&P peers with S American ops

858

1,042

1.54

1.34

1.59

1.68

31%

42%

1.4%

16%

29.5

Frontera Energy Corp

734

1,017

1.07

1.03

1.46

1.63

28%

53%

0.0%

6%

24.5

GeoPark Ltd

771

1,272

1.96

1.52

2.35

2.49

21%

29%

2.5%

5%

31.9

Gran Tierra Energy Inc

509

996

1.19

0.98

1.69

1.92

44%

40%

0.0%

12%

31.7

Parex Resources Inc

1,814

1,428

2.01

1.75

1.15

1.24

19%

22%

4.8%

15%

26.3

Petrotal Corp

461

497

1.47

1.42

1.30

1.14

43%

65%

0.0%

43%

33.0

Canada

6,226

7,257

2.85

2.64

3.08

3.03

20%

23%

2.5%

10%

34.6

Junior E&P<30kboed

797

933

2.77

2.68

3.14

3.33

23%

23%

3.3%

4%

43.5

Cardinal Energy Ltd (Alberta)

982

1,035

3.02

3.26

3.20

3.80

25%

19%

4.6%

4%

47.6

Surge Energy Inc

611

831

2.52

2.11

3.08

2.86

21%

28%

2.0%

4%

39.3

Intermediate E&P>30kboed

1,619

1,891

2.66

2.40

2.81

2.69

19%

24%

1.4%

13%

32.0

Baytex Energy Corp

2,837

3,701

2.92

2.33

3.59

2.53

21%

27%

0.0%

6%

44.0

Birchcliff Energy Ltd

2,312

2,594

3.04

3.88

2.89

4.08

26%

17%

0.6%

4%

33.0

Crew Energy Inc

734

969

2.84

2.68

3.54

3.65

22%

24%

0.0%

4%

30.8

Enerplus Corp

3,652

4,198

3.70

3.16

3.71

3.42

19%

19%

0.8%

4%

42.3

Frontera Energy Corp

734

1,017

1.07

1.03

1.46

1.63

28%

53%

0.0%

6%

24.5

Kelt Exploration Ltd

918

912

3.14

2.67

2.95

2.83

9%

10%

0.0%

25%

29.9

Nuvista Energy Ltd

1,810

2,115

2.75

2.39

2.89

2.66

21%

24%

0.0%

20%

30.9

Obsidian Energy Ltd

713

966

1.83

1.65

2.12

2.08

27%

35%

0.0%

15%

30.1

Paramount Resources Ltd

3,181

3,358

3.48

2.88

3.60

3.09

15%

18%

3.8%

18%

36.7

Parex Resources Inc

1,814

1,428

2.01

1.75

1.15

1.24

19%

22%

4.8%

15%

26.3

Pipestone Energy Corp

672

831

2.79

2.27

2.35

1.92

27%

34%

0.0%

27%

25.8

Tamarack Valley Energy Ltd

1,373

1,773

2.35

2.28

2.75

2.80

20%

23%

2.6%

12%

39.9

Large E&P>100kboed

16,334

19,028

3.23

3.08

3.56

3.56

21%

21%

4.2%

6%

37.0

ARC Resources Ltd

9,136

10,703

3.22

3.06

3.43

3.53

19%

16%

2.5%

3%

31.0

Canadian Natural Resources Ltd

61,716

72,049

4.00

4.24

3.97

4.70

18%

16%

4.8%

3%

55.1

Crescent Point Energy Corp

4,230

5,506

2.34

2.02

2.84

2.95

27%

26%

2.7%

2%

41.6

Ovintiv Inc

13,419

17,343

2.96

2.10

3.45

2.75

21%

29%

1.8%

0%

34.4

Peyto Exploration & Development Corp

1,558

2,289

2.42

2.25

3.21

3.41

23%

24%

5.2%

7%

21.8

Tourmaline Oil Corp

19,907

20,265

5.25

5.34

5.60

4.96

11%

13%

8.1%

7%

39.9

Whitecap Resources Inc

4,371

5,037

2.39

2.53

2.40

2.62

26%

21%

4.1%

21%

35.3

US

22,994

26,970

3.69

3.43

3.95

3.77

18%

20%

1.6%

7%

60.0

RoW

4,162

5,406

1.93

2.11

2.13

2.08

43%

35%

2.5%

17%

54.5

Average

12,631

14,864

2.99

2.80

3.21

3.11

23%

25%

2.0%

10%

47.3

Source: Edison Investment Research, Refinitiv. Note: Prices at 5 September 2022.

Exhibit 7: Financial summary

 

US$m

 

2019

2020

2021

2022e

2023e

Year-end 31 December

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

219.5

246.8

250.5

272.5

309.7

Cost of sales (opex)

(17.1)

(18.0)

(20.7)

(20.1)

(19.5)

Gross profit

202.4

228.8

229.8

252.4

290.1

General & admin and other recurring expenses

(36.4)

(41.3)

(35.4)

(43.1)

(44.2)

EBITDAX*

 

 

166.0

187.5

194.4

209.3

245.9

Share based payments

(7.9)

(5.9)

(4.6)

(4.7)

(4.8)

Exploration expense

(3.0)

-

(19.3)

-

-

Other non-recurring

(3.2)

(8.7)

(8.3)

EBITDA

 

 

151.9

172.9

162.2

204.6

241.1

Depreciation

(54.3)

(64.5)

(67.7)

(79.1)

(88.5)

Operating Profit (before amort. and except.)**

 

 

103.8

117.1

122.1

125.5

152.6

Intangible amortisation

-

-

-

-

-

Exceptionals

(6.2)

(8.7)

(27.6)

-

-

Other

-

-

-

-

-

EBIT

97.6

108.4

94.5

125.5

152.6

Net interest

(32.9)

(31.0)

(34.4)

(35.1)

(35.0)

Profit Before Tax (norm)

 

 

70.9

86.1

87.7

90.4

117.6

Profit Before Tax (FRS 3)

 

 

64.7

77.4

60.1

90.4

117.6

Tax

(30.5)

(82.1)

(43.9)

(41.6)

(60.5)

Profit After Tax (norm)

40.4

3.9

43.8

48.8

57.1

Profit After Tax (FRS 3)

34.2

(4.7)

16.2

48.8

57.1

Average Number of Shares Outstanding (m)

178.3

180.6

178.1

170.9

170.9

EPS - normalised (c)

 

 

22.67

2.18

24.59

28.57

33.42

EPS - normalised fully diluted (c)

 

 

22.67

2.18

24.59

28.57

33.42

EPS - (IFRS) (US$)

 

 

0.19

(0.03)

0.09

0.29

0.33

Dividend per share (c)

0.05

0.21

0.21

0.22

0.22

Gross margin (%)

92.2

92.7

91.7

92.6

93.7

EBITDA margin (%)

92.2

92.7

91.7

92.6

93.7

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

47.3

47.4

48.7

46.0

49.3

BALANCE SHEET

Non-current assets

 

 

620.8

596.3

625.4

730.6

831.4

Intangible assets

53.9

62.8

70.0

171.6

281.2

Tangible assets

506.1

524.8

531.0

516.5

507.7

Investments

60.8

8.7

24.4

42.4

42.4

Current assets

 

 

133.3

153.5

218.4

106.9

79.8

Stocks

-

-

-

-

-

Debtors

69.6

70.7

71.4

71.4

71.4

Cash

41.2

68.3

138.5

27.0

0

Other/ restricted cash

22.4

14.5

8.5

8.5

8.5

Current liabilities

 

 

(97.8)

(92.6)

(77.1)

(77.1)

(85.7)

Creditors

(89.6)

(85.4)

(74.5)

(74.5)

(74.5)

Short-term borrowings

(8.2)

(7.2)

(2.5)

(2.5)

(11.1)

Long-term liabilities

 

 

(413.5)

(449.8)

(581.6)

(564.5)

(597.2)

Long-term borrowings

(333.4)

(359.9)

(492.0)

(474.9)

(507.6)

Other long-term liabilities (inc. decomm.)

(80.1)

(89.9)

(89.6)

(89.6)

(89.6)

Net assets

 

 

242.7

207.4

185.1

196.0

228.4

CASH FLOW

Operating cash flow

 

 

108.4

152.3

123.8

169.2

185.7

Capex inc acquisitions

(84.3)

(89.0)

(101.5)

(184.3)

(189.3)

Financing expenses

(29.5)

(28.7)

(31.7)

(36.6)

(35.3)

Equity issued/(repurchased)

7.2

(2.3)

(8.8)

(13.2)

-

Dividends

(7.1)

(20.6)

(29.5)

(29.5)

(29.5)

Net cash flow

(5.3)

11.8

(47.6)

(94.4)

(68.4)

Opening net debt/(cash)

 

 

288.1

300.3

298.9

356.0

450.3

HP finance leases initiated

-

-

-

-

-

Other

(7.0)

(10.3)

(9.5)

(0.0)

-

Closing net debt/(cash)

 

 

300.3

298.9

356.0

450.3

518.7

Source: Company accounts, Edison Investment Research. Note: *EBITDA excluding pre-licence costs and exploration impairment, stock-based compensation and non-recurring items. **Operating profit excluding pre-licence costs and exploration impairment, and non-recurring items.


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Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

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United States of America

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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 Canacol Energy and prepared and issued by Edison, in consideration of a fee payable by Canacol Energy. Edison Investment Research standard fees are £60,000 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.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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