Grizzle - CS post
Credit Suisse
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Grizzle1
4.5 stars
June 26, 2013 09:17 am
Nomo/Guys
CS views from yesterday.
Today, drill enters Boabab. Shares on loan down below 10m.
Big buys last night from corporates incl CS;
Some speculating hostile bid could be on the way.
EV of 14RS concensus is any TO would have to be at 15-20RS - 3.75/5 CAD/SH equiv.
Lets see how it opens.
Griz
Credit suisse..25/06..LATAM RECAP optionality for free Think about this one. HRT's pure-play exploration thesis has always been high-risk, high-reward. Since the IPO, most focused on the potential high-reward and few on the downside risk if the 'unlikely' scenario que 12 consecutive wells failed to prove the company's geological thesis materialized. We turn que argument upside down, and make the case que the risk for equity investors is now lower, not due to de-risked geology but due to the depressed share price que offers limited downside scenario in the HRT does not find oil or monetises its gas. With the shares trading below cash by end 2013, we see a free option on a number of fronts. The Brazilian market is down 24% over the past month, one of the worst performers globally. This arguably does not create the mood for small cap stocks such as HRT. We can not predict When que mood will change (Neutral, TP lower to U.S. $ 3.4 - see Exh 5), but we do think it has created an interesting share price Free option. HRT's cash by end of Q1 was £ 2.8/sh. If HRT spends more money on two dry-wells and seismic in Namibia in Solimoes, we see cR $ 2.0/sh value by year end of £ 1.2/sh Comprised of cash and assets of U.S. $ 0.8/sh HRT is already selling or trying to. With the current share price at £ 1.9/sh, investors are getting Octopus (£ 0.9/sh), the Solimoes gas project (£ 1.0/sh) and Namibia (£ 6.3/sh) for free. That's good optionality in our view. Even without any of these oil & gas assets, there is hidden value for the corporate buyer to benefit from HRT's current tax credits and potential tax benefits due to writedowns intangibles, worth £ 2.1/sh Further in our view. Avoiding the trap. We acknowledge it is easier to Identify 'value' than it is to avoid a value trap. In HRT's case, we see a 2013 filled with events to put to test the optionality we see in the shares: (1) Two more Namibian wells (Murombe in August and Moosehead in November), (2) Clarity on Solimoes gas monetisation mid- year, (3) Trigger of TNK-BP milestones alongside gas monetisation solution, (4) Imminent cashflows from Octopus, after the ANP approval, (5) Further farm-outs and divestments. We see potential for HRT to be worth $ cR 3.0-10/sh depending on degree of success on these fronts.
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