Canacol Energy — Shifting focus

Canacol Energy (TSX: CNE)

Last close As at 26/02/2024

CAD6.45

−0.40 (−5.84%)

Market capitalisation

220m

More on this equity

Research: Oil & Gas

Canacol Energy — Shifting focus

Canacol Energy has announced that it is cancelling its Empresas Publicas de Medellin (EPM) gas sales contract and pipeline from Jobo to Medellin. This is likely to affect gas sales from 2025 since this pipeline was to be the main driver of revenues. Management also said that it is making a strategic entry into Bolivia with the award of three exploration contracts. Separately, Canacol’s Q323 numbers had a higher netback than expected. However, the deferred production leads us to reduce our NAV to C$17.36 per share from C$23.94 per share.

Written by

Peter Hitchens

Canacol Energy_resized

Oil & Gas

Canacol Energy

Shifting focus

Strategic update

Oil and gas

22 November 2023

Price

C$7.22

Market cap

C$246m

C$1.38/US$

Net debt (US$m) at 30 September 2023

610

Shares in issue

34.1m

Free float

67%

Code

CNE

Primary exchange

TSX

Secondary exchange

BVC

Share price performance

%

1m

3m

12m

Abs

(19.0)

(35.3)

(25.6)

Rel (local)

(23.0)

(36.4)

(26.1)

52-week high/low

C$12.3

C$6.5

Business description

Canacol Energy is a Colombia-based exploration and production company that is focused on natural gas. The company is the largest independent onshore gas producer and supplies approximately 20% of Colombia’s gas needs.

Next events

2024 budget

December 2023

Analyst

Peter Hitchens

+44 (0)20 3077 5700

Canacol Energy is a research client of Edison Investment Research Limited

Canacol Energy has announced that it is cancelling its Empresas Publicas de Medellin (EPM) gas sales contract and pipeline from Jobo to Medellin. This is likely to affect gas sales from 2025 since this pipeline was to be the main driver of revenues. Management also said that it is making a strategic entry into Bolivia with the award of three exploration contracts. Separately, Canacol’s Q323 numbers had a higher netback than expected. However, the deferred production leads us to reduce our NAV to C$17.36 per share from C$23.94 per share.

Year end

Revenue
(US$m)

EBITDAX*
(US$m)

Cash flow
(US$m)

Net debt
(US$m)

Capex
(US$m)

Yield
(%)

12/22

336

198

185

438

(180)

13.6

12/23e

373

240

205

481

(150)

13.6

12/24e

388

241

213

503

(160)

13.6

12/25e

471

306

263

486

(180)

13.6

Note: *EBITDAX, earnings before interest tax, depreciation, amortisation and exploration write-off.

Cancellation of EPM gas sales contract

Canacol has cancelled its long-term gas sales contract with EPM and will not proceed with its proposed pipeline from its Jobo processing plant to Medellin. The pipeline had been delayed but management had felt headwinds from legal, social and security problems. The group is looking at drilling the high-impact Pola-1 exploration well in Q224, where success could see sales into the interior market (although through existing pipelines).

Move to Bolivia

Independently, Canacol has made a strategic entry into Bolivia with the signing of three E&P contracts with Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), the Bolivian state oil company. Management is also in discussions with the government for a further contract. These contracts are located in the main gas-producing basin in Bolivia and close to the main export pipeline to Brazil. The targets are low-risk redevelopments of mature fields, as well as some exciting gas exploration targets.

Financials: Raised 2023/24 but lower 2025 numbers

Canacol’s Q323 results were better than expected, achieving a high netback and prompting management to believe that EBITDAX will be towards the top end of its expectations. Therefore, we are raising our 2023 and 2024 EBITDAX forecasts. However, we have reduced our 2025 EBITDAX estimate to US$306m from US$365m. This is based on production of 230mmcf/day compared to our previous estimate of 280mmcf/day.

Valuation: NPV reduced

Although the proven and probable reserves remain, production is deferred and this has an impact on our valuation. We are reducing our NAV to C$17.36 per share from C$23.94 per share. We believe that this is conservative. The reserves allocated for the interior market will be piped via existing infrastructure to other customers.

Strategic update

Change in strategy on Colombia’s interior market

Canacol has announced that its long-term gas sales contract with EPM is cancelled. This was the first contract that it had signed and would have been supplied through its proposed pipeline from its Jobo processing plant to Medellin. The contract was to sell 21mmcf/day from December 2024, rising to 54mmcf/day in December 2025. Management has also announced that it will not proceed with this pipeline. The pipeline had already been delayed but management had felt increasing headwinds from legal, social and security problems over the last six months. On top of this, management felt that the dynamics of the gas market had changed and the company has decided to invest more in the more prospective Middle Magdalena Basin. Despite this there is still the potential of selling some gas in the Lower Magdalena Basin, although this would be through the existing infrastructure where there is increasing spare capacity and will require less investment.

Canacol had spent approximately US$6m on this project in 2023 and an estimated US$32m in total on the project. The cancellation should not incur any further penalty. The lower investment in this will be used on debt reduction and increasing spending in other areas. Management is due to announce its 2024 budget in December, when we will get a better feel for the numbers.

Strategic entry into Bolivia

Canacol has announced that it has made a strategic entry into Bolivia with the signing of three exploration and production contracts with YPFB, the Bolivian state oil company. For these the company has placed initial guarantees of a modest US$1.4m. Management is also in discussions with the government for a fourth E&P contract. This is part of the government’s efforts to attract investment to allow an increase in reserves and production. These contracts are located in the main gas producing basin in Bolivia and close to the main export pipeline to Brazil, allowing any reserves to be quickly commercialised. The targets are low-risk redevelopments of mature fields, as well as some exciting gas exploration targets. There is a modest capital commitment, estimated at approximately US$27m over five years. Canacol believes it will be in a position to start investment in the country in 2024. The company has ambitions of building up this business in a similar way to its Colombian operations, where it entered an unloved gas market in 2012 and has since became the largest independent onshore gas producer.

Bolivia looks an attractive gas market. There is a ready export market to Brazil and Argentina, which are both short on gas and, as such, the marginal price driver will be the price of liquefied natural gas imports. The current import price of Bolivian gas is US$10.00–15.00/mcf. Given that there is an export cost of approximately US$2.50/mcf (operating cost of c US$1.00/mcf and tariff of c US$1.50/mcf), this would give a higher well head price than is realised in Colombia. As a slight offset, the fiscal terms would appear slightly higher, with a government take (royalties and income tax) of 60% and a 10% profit share to YPFB.

Pola-1 to spud Q224

Canacol is expecting to drill the high-impact Pola-1 exploration well in Q224, which is a delay on the previous expectation of the end of Q423. This is a high-impact Cretaceous play in its acreage in the Middle Magdelena Basin with P50 prospective recoverable resources of more than 1tcf. Success would also open up other prospects in the area. If gas is found, it is likely to be sold into the interior market, through the existing Transportadora de Gas Internacional (TGI) pipeline where there is significant spare capacity. Success at this well would more than make up for the loss of gas sales through the Jobo-Medellin pipeline.

Canacol is looking at a deeper Cretaceous play in its acreage in the Middle Magdalena Basin. These targets are very large prospects but are a higher risk play than its traditional targets in the Tertiary. Canacol has identified 18 prospects and leads with P50 gross prospective resources of 16.6tcf of gas on an unrisked basis (6.6tcf on a risked basis). Successful drilling of these could be transformational for the group’s reserve and resource base.

The first well in this new play is the Pola-1 well in licence VMM-45, where Canacol has a 100% working interest. This is expected to spud in Q224, with the drilling permit granted and well-pad built. This is a bit later than previously expected, with the company having delays in securing a 3,000hp rig that can cope with the potential pressures. The well is expected to take five months to drill. This exploration well is targeting gross unrisked P50 prospective recoverable resources of over 1tcf of gas, with management believing that the geological chance of success is an encouraging 40%. Any gas discovered at this well would be quickly monetised since the block is adjacent to the TGI gas pipeline, which goes to the interior market. There is currently 260mmcf/day of spare capacity, but this is expected to increase as production declines from the mature fields

Success here would give a huge boost to the group’s resource base, but, perhaps just as importantly, it would significantly de-risk the other prospects and leads in this geological horizon and improve the outlook for Canacol. We believe that the risks associated with this well have been reduced, with Shell and ExxonMobil proving the presence of a working petroleum system with earlier wells.

Financials: Raised 2023/24 cash flows but lowered in 2025

On 9 November, Canacol reported its Q323 results. The group has been able to benefit from strong netbacks, US$4.14/mcf compared to US$3.73/mcf last year, on the back of robust demand from gas due to the increasing impact of El Nino. Beyond the impact of El Nino, there is a growing shortage of gas and we believe that on the back of this, the company should be able to enjoy higher prices/netbacks. Canacol reported EBITDAX for the first nine months of the year (9M23) at c US$184m, compared to US$161m for the previous year. Management expects this strength in netbacks to continue for the rest of the year and believes that its FY23 EBITDAX will be towards the top end of its previous guidance range of US$190–263m. Canacol took a charge of US$32.6m through the profit and loss account, due to writing off of the historic expenditure on the Jobo-Medellin pipeline.

The cancellation of the Jobo-Medellin pipeline will only affect our forecasts for 2025 cash flows, where there will be lower-than-previously-expected gas sales. We are raising our 2023 and 2024 forecasts following the higher netbacks. Our 2023 EBITDAX is raised to US$240m from US$218m, while our 2024 forecast is raised to US$241m from US$217m. However, we are reducing our EBITDAX estimate in 2025 to US$306m from a previous estimate of US$365m. This is on the back of production of 230mmcf/day compared to our previous estimate of 280mmcf/day. As a caveat for investors, this was a somewhat subjective forecast given the relatively fast-moving dynamics of the gas market in Colombia. There is the impact of El Nino, which is starting to be felt and could cause a shortage of gas over the next few years. On top of this, we have not included any contribution from Canacol’s new operation in Bolivia. Potential success at the Pola-1 well would also affect future forecasts.

Exhibit 1: Canacol Energy changes in estimates (US$m)

Revenue

EBITDAX cash flow

EBITDAX

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2023e

351

373

6.3

190

205

7.9

218

240

10.1

2024e

364

388

6.6

197

213

8.1

217

241

8.1

2025e

530

471

(11.1)

301

263

(14.1)

365

306

(12.6)

Source: Edison Investment Research estimates

Valuation

We value Canacol on a NAV basis, which is derived from a DCF model. This uses the anticipated post-tax cash flow from the group’s fields and commercial discoveries after development and operating costs. The discount rate we use is 10%, the standard rate that the industry uses. Given we are delaying some potential production in 2025 and beyond this will have an impact on the discounted cash flows and hence our asset valuations.

On proved reserves this would lead to a DCF value of US$651.50m. The probable reserves and resources would add a further US$456.1m; for the sake of being conservative we are risking them and including a 50% discount compared to the proved reserves. This would give a risked valuation of the group’s asset base of US$879.6m, down from our previous estimate of US$1,047.1m. From this, we adjust for the group’s net debt (long- and short-term debt less cash), which at the end of 2022 was US$437.9m. This gives a NAV of US$441.6m. This equates to C$17.36 per share (down from C$23.94 per share) and should be compared to the current share price of C$7.22).

The exploration programme will be the main driver of this asset value and, assuming that management is able to achieve the 200% reserve replacement, then the reserve base will grow, allowing the value to move higher. In 2023 a 200% reserve replacement ratio would imply a 9% increase in group reserves. We are currently not adding any value to exploration upside.

Exhibit 2: Financial summary

2020

2021

2022

2023e

2024e

2025e

Year end 31 December

PROFIT & LOSS

Revenue

 

279

311

336

373

388

471

Cost of Sales

(106)

(130)

(137)

(132)

(147)

(165)

Gross Profit

173

181

198

241

241

306

EBITDAX

 

173

181

198

240

241

306

Operating Profit (before amort. and except.)

108

93

108

151

130

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

0

0

0

0

0

0

Other

0

0

0

0

0

0

Operating Profit

108

93

108

151

130

170

Net Interest

(31)

(34)

(41)

(37)

(37)

(37)

Profit Before Tax (norm)

 

77

59

66

114

92

133

Profit Before Tax (FRS 3)

 

77

59

66

114

92

133

Tax

(82)

(44)

81

(40)

(32)

(47)

Profit After Tax (norm)

(5)

15

147

74

60

86

Profit After Tax (FRS 3)

(5)

15

147

74

60

86

Average Number of Shares Outstanding (m)

36.5

35.6

34.1

34.1

34.1

EPS - normalised (US$)

 

(0.0)

0.0

0.4

0.2

0.2

0.3

EPS - normalised and fully diluted (US$)

(0.0)

0.0

0.4

0.2

0.2

0.2

EPS - (IFRS) (US$)

 

(0.0)

0.0

0.4

0.2

0.2

0.3

Dividend per share (C$)

1.0

1.0

1.0

1.0

1.0

1.0

Gross Margin (%)

62.0

58.1

59.1

64.5

62.1

64.9

EBITDA Margin (%)

62.0

58.1

59.1

64.5

62.1

64.9

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

38.9

30.1

32.0

40.4

33.4

BALANCE SHEET

Fixed Assets

 

596

625

880

940

989

1,033

Intangible Assets

72

94

292

356

424

499

Tangible Assets

525

531

588

584

565

534

Investments

0

0

0

0

0

0

Current Assets

 

154

218

135

91

70

86

Stocks

71

71

70

70

70

70

Debtors

0

0

0

0

0

0

Cash

68

139

59

15

(6)

11

Other

15

8

6

6

6

6

Current Liabilities

 

(93)

(77)

(193)

(193)

(193)

(193)

Creditors

(85)

(75)

(160)

(160)

(160)

(160)

Short term borrowings

(7)

(3)

(33)

(33)

(33)

(33)

Long Term Liabilities

 

(450)

(582)

(530)

(530)

(530)

(530)

Long term borrowings

(360)

(492)

(463)

(463)

(463)

(463)

Other long term liabilities

(90)

(90)

(66)

(66)

(66)

(66)

Net Assets

 

207

185

292

308

335

396

CASH FLOW

Operating Cash Flow

 

183

154

297

245

245

310

Net Interest

(29)

(32)

(32)

(37)

(37)

(37)

Tax

(31)

(30)

(111)

(40)

(32)

(47)

Capex

(89)

(101)

(180)

(150)

(160)

(180)

Acquisitions/disposals

0

0

0

0

0

0

Financing

16

113

(21)

(0)

0

0

Dividends

(21)

(29)

(28)

(28)

(28)

(28)

Net Cash Flow

30

74

(75)

(10)

(12)

19

Opening net debt/(cash)

 

300

299

356

438

481

503

HP finance leases initiated

0

0

0

0

0

0

Other

(28)

(131)

(7)

(33)

(9)

(2)

Closing net debt/(cash)

 

299

356

438

481

503

486

Source: Canacol Energy accounts, Edison Investment Research


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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Canacol Energy — 2022 ESG report highlights new goals

Energy & Resources

Canacol Energy — Q2 results in line

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Research: Consumer

Basic-Fit — In good shape

Basic-Fit remains firmly on the front foot after confirming at its recent capital markets day (CMD) that its aim is to more than double its owned clubs from 1,402 to 3,000–3,500 by 2030. Management is confident it can fund this growth internally as the business is highly cash generative and well-financed. The 387 net openings since 2021 (c 40% growth) provide both welcome earnings visibility as clubs mature and a strong record of delivery. Further positives are a ringing endorsement of Germany as a prime opportunity, a ‘game-changing’ new maintenance contract (saving €40m pa by 2030), a heightened focus on membership yield (the company is guiding +4% in 2024) and scope for additional growth by franchising. On Basic-Fit’s preferred metric of pre-IFRS 16 adjusted EBITDA, consensus forecasts of €348m for 2024 give EV/EBITDA of 7.5x.

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