Summary
Africa Oil Corporation's share repurchase program aims to reduce outstanding shares by 6% annually, enhancing shareholder value alongside a robust dividend policy.
The company is expanding through strategic agreements and increased ownership of promising assets, ensuring future growth and strong cash flow.
With a projected $200 million in capex and $400 million in operating cash flow, Africa Oil expects substantial free cash flow, supporting shareholder returns.
Despite potential oil price risks, Africa Oil's diversified portfolio and aggressive growth plans make it a top oil investment pick for 2025.
I am The Value Portfolio, an experienced analyst specializing in stock research and wealth growth. I run the investing group The Retirement Forum where I focus on ideas to prepare you for retirement.
Lone oil rig in middle of sea
HeliRy
Africa Oil Corp. (OTCPK:AOIFF) is a small-cap oil company worth more than $600 million. The company has done a great job, with its small size, working to diversify itself. We already discussed the company's intelligent acquisition and continuing growth here, and now it's taking advantage of its cash flow and low share price to repurchase shares to the tune of 6% annually. That shrinking share count, combined with strong assets, make it a valuable investment.
Africa Oil Corporation Share Repurchases
The company has instituted a share buyback program, which is what will potentially result in a 6% shrink in 2025.
Africa Oil Corporation Investor Presentation
Africa Oil Corporation Investor Presentation
Last year, the company purchased 23.3 million shares, or roughly 6% of its outstanding shares, with a limit at 10%. The company's new buyback program for 2024-2025 is capped at a similar 6% of shares and in the past 1 month the company has already purchased 0.5%, putting it on target for that 6% reduction in 2025.
Combined with a strong dividend, which we'll discuss below, and the company has strong share repurchases it can comfortably afford. We'd like to see even more aggressive repurchases at its low share price.
Africa Oil Corporation Expansion
At the same time, for a small company, Africa Oil has done an incredible job of pivoting with both Prime Oil and Gas and other opportunities.
Africa Oil Corporation Investor Presentation
Africa Oil Corporation Investor Presentation
The company has signed a number of agreements to chase some of its most exciting assets. In 2024, the company had a farm down of its exciting Namibia and South African assets. It also managed to increase its ownership in Impact, one of its most exciting assets for future development. The company has also announced the consolidation with the remainder of Prime.
That will be incredibly important for the company's cash flow and future return ability. The company has a number of drilling prospects and even additional growth potential going into 2025.
Africa Oil Corporation Investor Presentation
Africa Oil Corporation Investor Presentation
The net results of this is visible above. The company's production in Nigeria will decline in some of the next years, bottoming in 2027. However, in 2028 there will be some recovery and after that, the company expects to see additional opportunities from Namibia. That will enable the company to maintain continued strong production without needing to spend substantial capex.
Capex is expected to sit at roughly $200 million, with operating cash flow at more than $400 million. That means the company should be able to generate more than $200 million in FCF on an annual basis. For 2025, the company should be able to generate closer to $300 million in FCF.
The biggest uncertainty for the company going into the end of the decade is the ability to turn discoveries into tangible production. Majors are selective about what they invest in, and while farm-down transactions are promising, it still requires billions, which Africa Oil Corporation doesn't have. The timing and uncertainty of that can hurt the company's future success.
Africa Oil Corporation Existing Cash Flow
The company has continued to generate strong cash flow.
Africa Oil Corporation Investor Presentation
Africa Oil Corporation Investor Presentation
The company has been impacted by continuing to pay down Prime Oil and Gas debt and net debt is now at -$30 million combined (Africa Oil Corp has positive cash flow but its 50% shareholding of Prime Oil and Gas has attributable debt). Despite the company spending cash on both share buybacks and dividends, and declining its personal cash pile in the chart above, net debt counting Prime Oil and Gas has actually declined by almost $40 million.
That means that on top of $60 million in shareholder returns (10%) the company managed to improve its cash by almost $40 million (another 6-7%). Those are strong double-digit returns by the company. The company's existing cash flow will double next year with less than 2x dilution given the company's merger with BTG Oil & Gas.
Africa Oil Corporation Shareholder Returns
The company overall is committed to strong shareholder returns as a combined entity.
Africa Oil Corporation Investor Presentation
Africa Oil Corporation Investor Presentation
The combined company will be broken down with existing shareholders having 65% and the new shareholders at 35%. At a $630 million USD market cap, that implies a total company value of $970 million. The company plans to maintain a minimum of $150 million of liquidity, which it can comfortably afford, and get net debt to EBITDAX <1.0x, which it can also easily do.
The annual base dividend of $100 million is a double-digit yield at its current share price, again a level the company can comfortably afford. 50% of excess FCF will also go to the company's shareholder returns. At the same time, the company plans to use both organic and inorganic growth to be able to chase continued growth.
Thesis Risk
The largest risk to our thesis is oil prices. Africa Oil Corporation is a tiny company in the overall scheme of things, and the company has no impact on the oil markets or prices. A major downturn in prices or a recession could hurt the company's ability to continue generating shareholder returns, making the company a poor investment.
The company's breakeven is ~$35 / barrel Brent versus prices of $80 / barrel, so for every 1% drop in prices, cash flow drops ~2%.
Conclusion
Africa Oil Corporation has an impressive portfolio of assets for a strong company, both with existing strong production, and with add-on opportunities expected to start in the next few years. The combined company's enterprise value will be almost $1 billion, but its dividend policy will mean a double-digit dividend yield.
The company is committed to overall shareholder returns, and we'd like to see more aggressive share repurchases. However, the company has some incredibly exciting opportunities that will come online towards the end of the decade, supporting continued production even as Nigeria declines. That makes the company our top oil pick of 2025.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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This article was written by
The Value Portfolio
35.71K Followers
The Value Portfolio specializes in building retirement portfolios and utilizes a fact-based research strategy to identify investments. This includes extensive readings of 10Ks, analyst commentary, market reports, and investor presentations. He invests real money in the stocks he recommends.
He is the leader of the investing group The Retirement Forum with features including: model portfolios, macro overviews, in-depth company analysis and retirement planning information. Learn more.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of AOIFF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments
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TopDoggie
24 Jan. 2025, 9:52 AM
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31.6 million dividends coming from Impact. Great news.
Fit Investment Ideas
14 Jan. 2025, 4:04 AM
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Thank you for the research!
We are long Africa Oil and wrote on AOI for SA.
Even more than Africa Oil, I now like Valeura Energy. Did you have a look at this one?
See:
seekingalpha.com/...
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GalleryDog
13 Jan. 2025, 6:46 PM
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All said, I’d prefer Tullow Oil over Africa Oil for 5 year growth and profitability in the African Oil market.
TLW.L is up 2.15% to 23.72. Check it out on Yahoo Finance finance.yahoo.com/...
P
Pasadenatyke
13 Jan. 2025, 4:57 PM
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Comments (24)
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I live in Houston which is teeming with O&G employees. My next-door neighbor, who worked for Exxon for years in acquisitions, walked me through Africa Oil's holdings and concluded it was a smart roll of the dice. While acknowledging AO is the flea on the dog of the majors, he also emphasized they've got some prime properties that others could easily bid for, if not the entire company. Strong speculative buy.
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danny6
13 Jan. 2025, 12:39 PM
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Nope......
Chancer
13 Jan. 2025, 9:05 AM
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Comments (19.54K)
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@The Value Portfolio
AOIFF remains dismissed by many oil investors and is undervalued.
I look forward to the expected dividend increase.
Exploration success on west coast Africa and east coast So. America suggests
a lot of deep water oil between those coasts- too deep with current tech.
Eventually there will be the tech to recover that oil. Established oil companies working in that area will get there first.
ToddKaz 45-47
13 Jan. 2025, 10:06 AM
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@Chancer When you say undervalued what do you think the share price should be?
puffnstuff
13 Jan. 2025, 11:57 AM
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@ToddKaz $5
ToddKaz 45-47
13 Jan. 2025, 1:38 PM
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@puffnstuff I dont think I would hold that long. 3 dollars I would probably sell.
HighYieldSucker
13 Jan. 2025, 6:54 AM
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Comments (579)
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Appreciate the article. What would be your buy under price? And do you know how the dividend is taxed?
Chancer
13 Jan. 2025, 9:07 AM
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@HighYieldSucker
15% Canadian foreign dividend withholding tax.
HighYieldSucker
13 Jan. 2025, 12:43 PM
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@Chancer thank you
A
ATL Guy
13 Jan. 2025, 3:59 PM
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@Chancer Or no Canadian dividend withholding tax, if held in a US retirement account (IRA, ROTH-IRA, SEP-IRA, 401K, etc.).
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About AOIFF Stock
Symbol Last Price % Chg
AOIFF
1.30 0.78%
Market Cap
$571.85M
PE
-
Yield
3.88%
Rev Growth (YoY)
-
Short Interest
-
Prev. Close
$1.29
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