GMP
Hyperion Exploration Corp.1 (HYX-V) BUY Last: $1.11 Target: $2.50 Reinstating coverage following closing of acquisitions and equity financing
Two Cardium-focused acquisitions
On March 3 HYX announced two Cardium-focused asset acquisitions in the Garrington and East Pembina regions. The total cash consideration of the two acquisitions was $26.25 million, with the larger Garrington deal closing on March 24 while the smaller East Pembina deal closed on March 7. We believe these are positive transactions as they have increased the company’s current production and cash flow base (which should provide accelerated base spending levels) and expanded its Cardium light oil resource opportunity base.
Details of $35 million equity financing
Along with the acquisition, HYX completed a $35 million equity financing which included both a common and flow through component. The company issued 22.0
million subscription receipts at $1.50/share and 1.1 million flow through shares at $1.80/share for total gross proceeds of $35 million.
Changes to our estimates
We have updated our estimates to reflect the two acquisitions and the equity financing. We are assuming accelerated production growth in both 2011 and 2012,
the transactions are accretive to our 2012 CFPS (f.d.d.) estimate, and the company is expected to maintain a clean balance sheet to support future activity levels.
Attractive relative valuation
One of the key highlights for HYX remains its attractive valuation relative to the peer group, particularly given its Cardium light oil focus. Based on our new estimates HYX is trading at 2.2x (2.7x debt adjusted) our 2012 estimate compared to the small cap peer group average of 5.2x (6.2x debt adjusted). We
also reiterate our $2.50 target price which is based on a conservative target multiple valuation.
We reiterate our BUY recommendation and $2.50 target price
We believe this is a positive acquisition for HYX that increases its production and cash flow base to support future growth and expands its exposure to the Cardium
light oil resource play. We had expected management to be active in its initial few quarters of operations in an effort to aggressively grow its opportunity base and
these latest transactions are in line with this view, and ultimately we believe HYX emerges as a bigger and a better entity going forward.