San Leon Energy “Game Changer” thoughts from SP Angel

SP Angel thoughts on San Leon Energy (LON:SLE)

The completion of the acquisition of OML 18 in Nigeria’s Delta State is significant as its valuation contribution not only dwarfs the rest of its portfolio, but also provides it with near term opportunities for growth, in both production and reserves. Furthermore, the asset provides the Company with access to further opportunities in country and regionally. We initiate coverage with a 100p Target Price and a BUY Recommendation.
OML 18 Acquisition a Game Changer
The acquisition of OML 18 represents a sea change for the Company in not only does it make the Company a producer, but the free cash that it generates from the business provides it with the flexibility to invest elsewhere. That said, we believe that the remainder of the asset base will start to be divested as investment turns to ramping up production in Nigeria, and looking for further opportunities in country, which must now become the focus for the Company.

OML 18 Now its Key Area and Makes Nigeria Accessible
OML 18 also provides ample room for the Company to continue to grow production, with an additional 100m bpd earmarked in the current development plan. What is not factored in are Contingent Resources that require a development plan to be reclassified as Reserves, and the further prospectivity, both within OML 18, which has not been drilled to date, or the wider opportunities provided by new licences, further acquisition opportunities and partnerships with other indigenous players.

Management Now Proven Their Mettle
The Management have pursued a steady development strategy with the majority of their assets, and as their transaction track record shows, when it comes to acquisitions they have retained discipline, walking away when the transaction isn’t right. With the consolidation of Aurelian, we believe that the management team have been fit for purpose, and needed a transaction to meet their available skill set. The completion of OML 18 is the vindication of that approach, and the development of asset will underline the Company’s operational capability.

Valuation – $611mm (101p)
We have valued San Leon’s assets using DCF valuation methodology at $611mm (101p), of which $337mm (56p) or 56% is contributed by the Core Valuation. The Nigerian assets contribute 71% of the Company’s valuation while Barryroe contributes 19%; the un-risked valuation is $9,506mm (1,401p). The Sum of Parts valuation based on the valuation of its Market Peers suggests the Company should be trading at 120p, some 160% above the current share price. Our valuation excludes any valuation contribution from services business.

 

DISCLAIMER

This note has been issued by SP Angel Corporate Finance LLP (“SP Angel”) in order to promote its investment services.

This information is a marketing communication for the purpose of the European Markets in Financial Instruments Directive (MiFID) and FCA’s Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.

This document is not based upon detailed analysis by SP Angel of any market; issuer or security named herein and does not constitute a formal research recommendation, either expressly or otherwise.

The value of investments contained herein may go up or down. Where investment is made in currencies other than the base currency of the investment, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Securities issued in emerging markets are typically subject to greater volatility and risk of loss.

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It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. This document should not to be relied upon as authoritative or taken in substitution for the exercise of you own commercial judgment. SP Angel is not responsible for any errors, omissions or for the results obtained from the use of the information in this document.

This document has been prepared on the basis of economic data, trading patterns, actual market news and events, and is only valid on the date of publication. SP Angel does not make any guarantee, representation or warranty, (either expressly or implied), as to the factual accuracy, completeness, or sufficiency of information contained herein. This document has been prepared by the author based upon information sources believed to be reliable and prepared in good faith.

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SP Angel Corporate Finance LLP is a company registered in England and Wales with company number OC317049 and whose registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SP Angel Corporate Finance LLP  is authorised and regulated by the Financial Conduct Authority whose address is 25, The North Colonnade, Canary Wharf, London E14 5HS and is a Member of the London Stock Exchange plc.

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