Canadian assets valued at $0. Lets assume for a moment that Equal does not own the Canadian assets for, and lets see if the company can support its current valuation. The current marketcap is $118m + $147m in debt = $265m enterprise value. $265m - $18m (50% of the Mississippian) = $247m for the Hunton.
US NG weighted names trade at the following metrics:
- $51K per boed,
- 146pct of after tax pv-10
- 6x cash flow
Using those metrics the Hunton, would be worth $440m
Most importantly the Hunton based New Source Energy IPO - should it price at the low end pf $10 per share - it would trade at the following metrics:
Marketcap $330m (cash $20m)
Reserves $310m (148% after tax PV10, 94% pre-tax PV10)
$62K per boed
8.4 EBITDA
Using those metrics, the Hunton would trade at $383m
We just shown earlier that the Hunton is currently trading at $247m (if the company had no other asset). $247m no where close to where it should be trading in comparison to similar assets, as a matter of fact it is trading at 35% to 45% to its US peers.
Now back to the Canadian assets (which I assumed a
value for earlier). The value of the Canadian assets (Viking, Cardium, Clair) is around $85m (on the low end) based on recent deals (Raging River, Cutpick) taking place in Canada, $85m / 34.9 = $2.43 per share.
The board of directors already told us last week that they are marketing the company assets; this is not a speculation, this is a fact, thus if they were to liquidate only the Canadian assets, each shareholder will get $2.43 in value for an asset that is currently priced at
in the stock price.
Equal remains one of the cheapest energy stocks out there, buying at at current levels gives you the Canadian assets for
, and the Hunton at 35% to 45% discount; meanwhile the board is already in the process of monetizing the assets; if the company was to divest only the Canadian assets in 3 months at $85m, this could take the shares to $5.8 from $3.4 today or 70% return in 3 months or 280% annual return.
EQU is an absolute buy here.
Regards,
Nawar