Category

Energy Sector

Brief Energy: Weekly Oil Views: Devoid of Fear or Cheer Premium, Brent Balances Around $65 and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Weekly Oil Views: Devoid of Fear or Cheer Premium, Brent Balances Around $65
  2. SPRC: Back to a Profitable Cycle in 2020

1. Weekly Oil Views: Devoid of Fear or Cheer Premium, Brent Balances Around $65

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The US and China signed their phase-one trade deal on January 15 but it barely boosted crude beyond a mild bump. Our readers will not have been surprised – because this was exactly the anticipation we had been conveying for some time.

It remains to be seen if the deal – which leaves majority of US tariffs on Chinese goods intact – will move the needle on global economic momentum. As for the oil market, it will need time to decide if the prospects for demand growth need recalibrating. 

In the absence of a “cheer premium” from the trade deal and a firm retreat of the fear premium that the escalating US-Iran tensions had introduced at the start of this month, crude prices are now in a holding pattern.

In the meantime, China’s commitment to boost purchases of US energy commodities may mean increased competition among Asian countries that had stepped up their imports of US crude over the past 18 to 24 months.

Plus: The danger of long-term destabilisation that has reared its head in at least two major oil producers amid an uneasy calm in the Middle East. 

2. SPRC: Back to a Profitable Cycle in 2020

Picture4

We initiate coverage of SPRC with a BUY rating and a 2020E target price of Bt11.60, derived from 1.3xPBV’20E, which represents a 13% premium to the Thailand energy average of 1.15x.

The story:

  • Superior GRM as a result of partnership with Chevron
  • To benefit from several turnaround projects including expansion
  • IMO regulation to support refinery margin in 2020E

Risks:

  • Raw material price fluctuation
  • Foreign currency exchange rate fluctuation
  • Unplanned shutdown of refinery

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Brief Energy: Weekly Oil Views: As OPEC+ Dithers, Coronavirus Keeps up Pressure on Crude and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Weekly Oil Views: As OPEC+ Dithers, Coronavirus Keeps up Pressure on Crude
  2. PTTEP: Thai E&P Leader with Promising Growth Outlook
  3. Weekly Oil Views: Crude in the Shadow of the Coronavirus: What Next?
  4. Weekly Oil Views: Is Crude Nearing a Bottom After Tumbling over 15% on Coronavirus?
  5. SK Innovation Share Buyback: Execution, Dividend Projection, & Restructuring

1. Weekly Oil Views: As OPEC+ Dithers, Coronavirus Keeps up Pressure on Crude

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It’s going to be four weeks since the deadly China coronavirus first rattled financial markets across the globe and pushed crude into bear territory.

There is still no sign of the epidemic peaking, and the sour sentiment over the clobbering of China’s economy is maintaining a stranglehold on the oil market.

Benchmark crude prices staged a modest recovery last week but one couldn’t call it a rebound.

The uncertainties around the novel virus are well-known. But what is it that we do know about the crisis so far, about the potential OPEC/non-OPEC response, and what expectations can we build on that information? Here’s our take.

2. PTTEP: Thai E&P Leader with Promising Growth Outlook

2

We initiate coverage of PTTEP with a BUY rating, based on a 2020E target price of Bt142, derived from a discounted cash flow valuation (WACC of 10% and TG of 2%). Our valuation implies 11.3x PE’20, which is in line with the Thai Energy Sector.

The story:

  • Leading petroleum exploration and production business in Thailand
  • Expect sales volume to increase by 6% CAGR in 2021-24
  • Solid financial position from which to expand regional and overseas investments
  • Attractive dividend yield of 4-5%

Risks: 

  • Foreign exchange rate fluctuation
  • Oil price fluctuation
  • Decline in proven reserves of oil and gas

3. Weekly Oil Views: Crude in the Shadow of the Coronavirus: What Next?

The shadow of the deadly China coronavirus continues to grow and crude, having slipped into bear market, remains in search of a floor.

All-out Chinese measures to try and contain the deadly outbreak in its epicentre in Hubei province and aggressive global efforts to protect national borders from the contagion have brought a range of commercial activity within and involving China to a near-standstill.

An unprecedented lockdown of communities, indefinite suspension of manufacturing and commercial activities and broken links in transportation and supply chains in China has hamstrung the country’s economy and hammered its oil consumption.I

What’s next for the battered oil market? We cover the ground by answering five key questions on the coronavirus and crude.

4. Weekly Oil Views: Is Crude Nearing a Bottom After Tumbling over 15% on Coronavirus?

Screen%20shot%202020 02 02%20at%202.34.30%20pm

The coronavirus pandemic worsened last week, with nearly 9,700 confirmed cases of infection and 213 deaths, and strengthened its chokehold on the oil market.

At the end of last week, light sweet crude benchmarks Brent and WTI had skidded by a cumulative 11-12% since the Wuhan virus outbreak first rattled markets on January 21. 

Has crude found a bottom? Read on for our perspective.

5. SK Innovation Share Buyback: Execution, Dividend Projection, & Restructuring

12

SK Innovation’s latest share buyback represents 5% of the SO and is worth nearly ₩600bil. Two years ago, the company bought back 5M shares for about ₩1tril. That was the first time it did a share buyback. Then, this buyback marks the second time in its corporate history. The target is nearly the same, thereby bringing the total treasury shares to more than 10% of the SO. 

The buyback begins today and ends three months later before May 2. It is an all open-market buyback, and the company set the daily limit at 462,800 shares, which is 123.29% of the 1M DTV and 10% of the target. If it buys back an equal number of shares each day until May 1, it will be about 20% of the 1M DTV.

The buyback will increase the treasury shares to 10.4%, which will put the voting rights of SK Holdings at 37.3%.

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Brief Energy: SPRC: Back to a Profitable Cycle in 2020 and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. SPRC: Back to a Profitable Cycle in 2020
  2. NIFTY CPSE Index Review – HUGE Impact & Possibly an Upcoming FFO
  3. Bayan Resources – New Issue Assessment – Lucror Analytics
  4. Oil Macro Heavy Signals Post Tactical Recovery

1. SPRC: Back to a Profitable Cycle in 2020

Picture4

We initiate coverage of SPRC with a BUY rating and a 2020E target price of Bt11.60, derived from 1.3xPBV’20E, which represents a 13% premium to the Thailand energy average of 1.15x.

The story:

  • Superior GRM as a result of partnership with Chevron
  • To benefit from several turnaround projects including expansion
  • IMO regulation to support refinery margin in 2020E

Risks:

  • Raw material price fluctuation
  • Foreign currency exchange rate fluctuation
  • Unplanned shutdown of refinery

2. NIFTY CPSE Index Review – HUGE Impact & Possibly an Upcoming FFO

Image

Last evening, the Index Maintenance Sub-Committee of NSE Indices Limited decided to make some changes to the NIFTY CPSE index. Indian Oil Corp (IOCL IN) and Power Finance (POWF IN) are being dropped from the index, while Cochin Shipyard (COCHIN IN), Nhpc Ltd (NHPC IN), Nmdc Ltd (NMDC IN) and Power Grid Corporation Of India (PWGR IN) are being included. This takes the number of constituents from 10 to 12.

The eligibility criteria has been tweaked to include stocks having more than 51% Government holding, down from the 51.5% needed earlier.

We expect Indian Oil Corp (IOCL IN) and Power Finance (POWF IN) to trade significantly lower this week with 24 days and 17 days of average volume to sell, respectively.

While the headline days to buy on the inclusions is very big, there is a high probability of the ETF buying the shares from the Government of India at the closing price on 23 January. We do not expect the inclusion names to trade higher and any price spikes on the headlines could be sold into.

3. Bayan Resources – New Issue Assessment – Lucror Analytics

Bayan Resources is roadshowing a benchmark-size USD three-year 144A/RegS Notes offering. The Notes are expected to be rated Ba3 (stable) and BB- (stable) by Moody’s and Fitch, respectively, in line with the company’s ratings. The transaction is expected to price on or after 16 January 2020. The proceeds will be used to refinance existing credit facilities and for general corporate purposes.

We view Bayan Resources as “Medium Risk” on the LARA scale, supported by its large low-cost production, and its strong and prudent financial profile. The company has grown to be one of Indonesia’s largest coal producers by developing Tabang Mine and the associated logistics infrastructure. The mine has low (first-quartile) production cost, giving rise to strong profitability and free-cash generation even in the coal downcycle. However, the mine operations face weather-related risk, which will be mitigated with the completion of new infrastructure allowing the transport of coal via a larger waterway. The company has a track record of prudent financial policy. Additionally, it has very little debt (after repaying debt in 2017) and is committed to keeping net leverage less than a low 2.5x through the cycle.

Our Credit Bias on Bayan is “Negative”, given the sustained low coal price environment, which will likely cause the financial risk profile to deteriorate. That said, financial metrics should remain strong.

We view Bayan’s corporate governance as “Weak” on the LAGA scale, owing to the concentration of ownership in the hands of founder and President Director, Low Tuck Kwong. Moreover, there are recurring related-party transactions, which stem from coal supply arrangements with entities owned by Mr Low and KEPCO. These weaknesses are partly offset by the robust Board appointments and experienced management team.

We expect the proposed notes to price at around 5.5%.

4. Oil Macro Heavy Signals Post Tactical Recovery

Wti%20d

W&T Offshore (WTI US) is resting on some interesting tactical support at 58 where the 200 day moving average and wedge price support align. This is a tactical bounce zone. Resistance comes in at 57.50/60 with scope to 62.

Our focus today is on trading a tactical rise into strategic sell territory near the Iran spike high zone. The rising wedge warns of a more macro negative cycle as does the MACD slip back below triple resistance.

MACD slipping back below macro resistance is negative and would confirm a bigger topping process (after a tactical recovery). An MACD break below trendline would also nail down a more negative macro cycle toward key support at 55 and 52 (just above the 51 triple lows).

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Brief Energy: PTTEP: Thai E&P Leader with Promising Growth Outlook and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. PTTEP: Thai E&P Leader with Promising Growth Outlook
  2. Weekly Oil Views: Crude in the Shadow of the Coronavirus: What Next?
  3. Weekly Oil Views: Is Crude Nearing a Bottom After Tumbling over 15% on Coronavirus?
  4. SK Innovation Share Buyback: Execution, Dividend Projection, & Restructuring
  5. Calisen IPO: Offer Price Indicates Discount to Base Case Valuation

1. PTTEP: Thai E&P Leader with Promising Growth Outlook

3

We initiate coverage of PTTEP with a BUY rating, based on a 2020E target price of Bt142, derived from a discounted cash flow valuation (WACC of 10% and TG of 2%). Our valuation implies 11.3x PE’20, which is in line with the Thai Energy Sector.

The story:

  • Leading petroleum exploration and production business in Thailand
  • Expect sales volume to increase by 6% CAGR in 2021-24
  • Solid financial position from which to expand regional and overseas investments
  • Attractive dividend yield of 4-5%

Risks: 

  • Foreign exchange rate fluctuation
  • Oil price fluctuation
  • Decline in proven reserves of oil and gas

2. Weekly Oil Views: Crude in the Shadow of the Coronavirus: What Next?

The shadow of the deadly China coronavirus continues to grow and crude, having slipped into bear market, remains in search of a floor.

All-out Chinese measures to try and contain the deadly outbreak in its epicentre in Hubei province and aggressive global efforts to protect national borders from the contagion have brought a range of commercial activity within and involving China to a near-standstill.

An unprecedented lockdown of communities, indefinite suspension of manufacturing and commercial activities and broken links in transportation and supply chains in China has hamstrung the country’s economy and hammered its oil consumption.I

What’s next for the battered oil market? We cover the ground by answering five key questions on the coronavirus and crude.

3. Weekly Oil Views: Is Crude Nearing a Bottom After Tumbling over 15% on Coronavirus?

Screen%20shot%202020 02 02%20at%202.34.30%20pm

The coronavirus pandemic worsened last week, with nearly 9,700 confirmed cases of infection and 213 deaths, and strengthened its chokehold on the oil market.

At the end of last week, light sweet crude benchmarks Brent and WTI had skidded by a cumulative 11-12% since the Wuhan virus outbreak first rattled markets on January 21. 

Has crude found a bottom? Read on for our perspective.

4. SK Innovation Share Buyback: Execution, Dividend Projection, & Restructuring

12

SK Innovation’s latest share buyback represents 5% of the SO and is worth nearly ₩600bil. Two years ago, the company bought back 5M shares for about ₩1tril. That was the first time it did a share buyback. Then, this buyback marks the second time in its corporate history. The target is nearly the same, thereby bringing the total treasury shares to more than 10% of the SO. 

The buyback begins today and ends three months later before May 2. It is an all open-market buyback, and the company set the daily limit at 462,800 shares, which is 123.29% of the 1M DTV and 10% of the target. If it buys back an equal number of shares each day until May 1, it will be about 20% of the 1M DTV.

The buyback will increase the treasury shares to 10.4%, which will put the voting rights of SK Holdings at 37.3%.

5. Calisen IPO: Offer Price Indicates Discount to Base Case Valuation

Image 507437586171580483864774

Calisen is a meter asset provider. The company has orders to install nearly 6M electric and gas meters by end of 2024.

Calisen is expected to raise £300M at IPO at a price range of 225p to 265p valuing the company between £1.25 to £1.42B. GER values the company at £1.51B based on discounted cash flow or 7% above the high end of the price range.

In our previous note (Calisen IPO: Low-Risk Business Model at Attractive Price), we stated that Calisen offers near term growth potential and in longer-term a stable revenue profile with high EBITDA margins.  Our valuation analysis suggests that the IPO price range is attractive in the context of the company’s business model.

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Brief Energy: Weekly Oil Views: Crude in the Shadow of the Coronavirus: What Next? and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Weekly Oil Views: Crude in the Shadow of the Coronavirus: What Next?
  2. Weekly Oil Views: Is Crude Nearing a Bottom After Tumbling over 15% on Coronavirus?
  3. SK Innovation Share Buyback: Execution, Dividend Projection, & Restructuring
  4. Calisen IPO: Offer Price Indicates Discount to Base Case Valuation
  5. SK Innovation’s Big Share Buyback = Improved “G” In ESG

1. Weekly Oil Views: Crude in the Shadow of the Coronavirus: What Next?

The shadow of the deadly China coronavirus continues to grow and crude, having slipped into bear market, remains in search of a floor.

All-out Chinese measures to try and contain the deadly outbreak in its epicentre in Hubei province and aggressive global efforts to protect national borders from the contagion have brought a range of commercial activity within and involving China to a near-standstill.

An unprecedented lockdown of communities, indefinite suspension of manufacturing and commercial activities and broken links in transportation and supply chains in China has hamstrung the country’s economy and hammered its oil consumption.I

What’s next for the battered oil market? We cover the ground by answering five key questions on the coronavirus and crude.

2. Weekly Oil Views: Is Crude Nearing a Bottom After Tumbling over 15% on Coronavirus?

Screen%20shot%202020 02 02%20at%202.34.30%20pm

The coronavirus pandemic worsened last week, with nearly 9,700 confirmed cases of infection and 213 deaths, and strengthened its chokehold on the oil market.

At the end of last week, light sweet crude benchmarks Brent and WTI had skidded by a cumulative 11-12% since the Wuhan virus outbreak first rattled markets on January 21. 

Has crude found a bottom? Read on for our perspective.

3. SK Innovation Share Buyback: Execution, Dividend Projection, & Restructuring

12

SK Innovation’s latest share buyback represents 5% of the SO and is worth nearly ₩600bil. Two years ago, the company bought back 5M shares for about ₩1tril. That was the first time it did a share buyback. Then, this buyback marks the second time in its corporate history. The target is nearly the same, thereby bringing the total treasury shares to more than 10% of the SO. 

The buyback begins today and ends three months later before May 2. It is an all open-market buyback, and the company set the daily limit at 462,800 shares, which is 123.29% of the 1M DTV and 10% of the target. If it buys back an equal number of shares each day until May 1, it will be about 20% of the 1M DTV.

The buyback will increase the treasury shares to 10.4%, which will put the voting rights of SK Holdings at 37.3%.

4. Calisen IPO: Offer Price Indicates Discount to Base Case Valuation

Image 507437586171580483864774

Calisen is a meter asset provider. The company has orders to install nearly 6M electric and gas meters by end of 2024.

Calisen is expected to raise £300M at IPO at a price range of 225p to 265p valuing the company between £1.25 to £1.42B. GER values the company at £1.51B based on discounted cash flow or 7% above the high end of the price range.

In our previous note (Calisen IPO: Low-Risk Business Model at Attractive Price), we stated that Calisen offers near term growth potential and in longer-term a stable revenue profile with high EBITDA margins.  Our valuation analysis suggests that the IPO price range is attractive in the context of the company’s business model.

5. SK Innovation’s Big Share Buyback = Improved “G” In ESG

Skinnovation refining

  • Sk Innovation (096770 KS) announced a big share buyback program today. The company mentioned that it will buy back 4.628 million shares (5% of total shares outstanding) representing 578.5 billion won. The share buyback program will last from 3 February to 2 May 2020. 
  • We believe that this will have a major POSITIVE impact on SK Innovation in the next several weeks. We are including SK Innovation in our model portfolio. 
  • The share buybacks are an integral component in the “Governance” component of the ESG funds. Many ESG funds will view this big share buyback of SK Innovation to be quite attractive. Even the funds that do not have specific ESG mandates are likely to give higher positive points on this large share buyback program. 

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Brief Energy: NIFTY CPSE Index Review – HUGE Impact & Possibly an Upcoming FFO and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. NIFTY CPSE Index Review – HUGE Impact & Possibly an Upcoming FFO
  2. Bayan Resources – New Issue Assessment – Lucror Analytics
  3. Oil Macro Heavy Signals Post Tactical Recovery
  4. Weekly Oil Views: Caution: US-Iran Tensions Tamped Down, Not Wiped Out

1. NIFTY CPSE Index Review – HUGE Impact & Possibly an Upcoming FFO

Image

Last evening, the Index Maintenance Sub-Committee of NSE Indices Limited decided to make some changes to the NIFTY CPSE index. Indian Oil Corp (IOCL IN) and Power Finance (POWF IN) are being dropped from the index, while Cochin Shipyard (COCHIN IN), Nhpc Ltd (NHPC IN), Nmdc Ltd (NMDC IN) and Power Grid Corporation Of India (PWGR IN) are being included. This takes the number of constituents from 10 to 12.

The eligibility criteria has been tweaked to include stocks having more than 51% Government holding, down from the 51.5% needed earlier.

We expect Indian Oil Corp (IOCL IN) and Power Finance (POWF IN) to trade significantly lower this week with 24 days and 17 days of average volume to sell, respectively.

While the headline days to buy on the inclusions is very big, there is a high probability of the ETF buying the shares from the Government of India at the closing price on 23 January. We do not expect the inclusion names to trade higher and any price spikes on the headlines could be sold into.

2. Bayan Resources – New Issue Assessment – Lucror Analytics

Bayan Resources is roadshowing a benchmark-size USD three-year 144A/RegS Notes offering. The Notes are expected to be rated Ba3 (stable) and BB- (stable) by Moody’s and Fitch, respectively, in line with the company’s ratings. The transaction is expected to price on or after 16 January 2020. The proceeds will be used to refinance existing credit facilities and for general corporate purposes.

We view Bayan Resources as “Medium Risk” on the LARA scale, supported by its large low-cost production, and its strong and prudent financial profile. The company has grown to be one of Indonesia’s largest coal producers by developing Tabang Mine and the associated logistics infrastructure. The mine has low (first-quartile) production cost, giving rise to strong profitability and free-cash generation even in the coal downcycle. However, the mine operations face weather-related risk, which will be mitigated with the completion of new infrastructure allowing the transport of coal via a larger waterway. The company has a track record of prudent financial policy. Additionally, it has very little debt (after repaying debt in 2017) and is committed to keeping net leverage less than a low 2.5x through the cycle.

Our Credit Bias on Bayan is “Negative”, given the sustained low coal price environment, which will likely cause the financial risk profile to deteriorate. That said, financial metrics should remain strong.

We view Bayan’s corporate governance as “Weak” on the LAGA scale, owing to the concentration of ownership in the hands of founder and President Director, Low Tuck Kwong. Moreover, there are recurring related-party transactions, which stem from coal supply arrangements with entities owned by Mr Low and KEPCO. These weaknesses are partly offset by the robust Board appointments and experienced management team.

We expect the proposed notes to price at around 5.5%.

3. Oil Macro Heavy Signals Post Tactical Recovery

Wti%20d

W&T Offshore (WTI US) is resting on some interesting tactical support at 58 where the 200 day moving average and wedge price support align. This is a tactical bounce zone. Resistance comes in at 57.50/60 with scope to 62.

Our focus today is on trading a tactical rise into strategic sell territory near the Iran spike high zone. The rising wedge warns of a more macro negative cycle as does the MACD slip back below triple resistance.

MACD slipping back below macro resistance is negative and would confirm a bigger topping process (after a tactical recovery). An MACD break below trendline would also nail down a more negative macro cycle toward key support at 55 and 52 (just above the 51 triple lows).

4. Weekly Oil Views: Caution: US-Iran Tensions Tamped Down, Not Wiped Out

The US and Iran last Wednesday stood down from a nerve-racking five-day escalation of tensions that had put the Middle East on high alert and sent rattled investors across the globe fleeing into safe-haven assets.

Crude had stacked on a 3-4% risk premium to hit four-month highs on Monday, which quickly fizzled out by mid-week.

But we need to be careful: The US and Iran have backed off for now, not laid down arms. The oil market may get a reminder before too long of the heightened animosity between the two countries and the fragility of the Middle East in the face of their resurgent tensions.

Will Tehran give peace a chance? If not, how might it retaliate and what are the pain points for oil? We give you our perspective.

 We also revisit the other key theme that was reclaiming centre-stage in the oil market as the week drew to a close: The expected signing of the US-China phase-one trade deal next Wednesday and what comes after.

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Brief Energy: Medco Energi – Earnings Flash – 9M FY 2019 Results – Lucror Analytics and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Medco Energi – Earnings Flash – 9M FY 2019 Results – Lucror Analytics
  2. Xinyi Solar Placement – Share Price Run-Up and past Deals Indicate that Discount Might Not Be Enough
  3. Weekly Oil Views: Brent Pierces $70 as US-Iran Tensions Boil Over. What Next for Risk Premium?
  4. WTI Breakout Levels and Energy Plays in Asia

1. Medco Energi – Earnings Flash – 9M FY 2019 Results – Lucror Analytics

Medco Energi’s 9M/19 earnings were slightly weaker than expected, as the gross margin fell amid higher cash costs and lower realised oil prices. Leverage was in line with expectations, thanks to a slight q-o-q improvement in Debt/EBITDA. We project that full-year Debt/EBITDA will strengthen slightly to c. 5x (LTM 9M/19: 5.4x), albeit remaining weaker than at FYE 2018 (4.8x).

We further expect Medco’s FCF to remain negative over the near term, on account of the high capex. That said, cash flow could be supplemented by the company’s non-core asset disposals. Medco may also embark on further acquisitions, considering its relatively short 2P reserve life of nine years. Although the company has ample 2C reserves, these are unproven and will require exploration capex.

2. Xinyi Solar Placement – Share Price Run-Up and past Deals Indicate that Discount Might Not Be Enough

Image 99040929621578304789998

A few shareholder of Xinyi Solar Holdings (968 HK) aim to raise around US$235m via selling 4.3% of the company.

We have covered some of the earlier deals, links to which are below:

While the past deals have been mixed, most of the recent ones have done well. Although all of them were primary raisings while this one will be a pure secondary with management selling.

3. Weekly Oil Views: Brent Pierces $70 as US-Iran Tensions Boil Over. What Next for Risk Premium?

Benchmark Brent crude futures vaulted above the key psychological mark of $70/barrel in the early hours of Monday, January 6, as the US and Iran ratcheted up their war rhetoric.
While Iran has vowed to avenge the death of General Qassem Soleimani, the leader of its Revolutionary Guards’ elite Quds Force killed in a US airstrike in Baghdad on Friday, the timing, location or severity of any attacks is anybody’s guess. 
A big question for the oil market is whether Iran will target oil infrastructure or shipping in the Middle East region, as it did on a few occasions last year. 
For the time being, we are expecting Iran to go after US troops stationed across the Middle East, which means upstream oil facilities or transportation will not be the primary target.
However, given the increased instability and the tail risk of a major disruption in oil supply, the fear premium in crude could keep inching higher. 
What are the potential scenarios the oil market needs to keep in view, and how should one look at oil and gas producers and refiners when crude spikes in a war-like environment? We give you our take.

4. WTI Breakout Levels and Energy Plays in Asia

Wti%20d

W&T Offshore (WTI US) is pressing on key resistance at 64/65 after clearing the 60.50 breakout barrier. Increased Iran tensions favor a push through 65 to test the 67 high zone and will lift energy names in Asia. Above 67 would set sights on the 70-71 level for WTI.

This webcast runs through some break points in energy names in Asia with hurdle levels and targets. CNOOC, Petrochina, Inpex, PTT, Thai Oil and Beach Energy.

Petrochina, Thai Oil and PTT  are the most bombed out and demonstrate better intermediate risk to reward and upside potential on a WTI spike above 67. Thai Oil’s triangle offers explosive potential. Beach Energy shows good tactical risk to reward off of 2.50 pivot and the bull wedge.

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Brief Energy: Weekly Oil Views: Is Crude Nearing a Bottom After Tumbling over 15% on Coronavirus? and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Weekly Oil Views: Is Crude Nearing a Bottom After Tumbling over 15% on Coronavirus?
  2. SK Innovation Share Buyback: Execution, Dividend Projection, & Restructuring
  3. Calisen IPO: Offer Price Indicates Discount to Base Case Valuation
  4. SK Innovation’s Big Share Buyback = Improved “G” In ESG
  5. Calisen IPO: Low-Risk Business Model at Attractive Price

1. Weekly Oil Views: Is Crude Nearing a Bottom After Tumbling over 15% on Coronavirus?

Screen%20shot%202020 02 02%20at%202.34.30%20pm

The coronavirus pandemic worsened last week, with nearly 9,700 confirmed cases of infection and 213 deaths, and strengthened its chokehold on the oil market.

At the end of last week, light sweet crude benchmarks Brent and WTI had skidded by a cumulative 11-12% since the Wuhan virus outbreak first rattled markets on January 21. 

Has crude found a bottom? Read on for our perspective.

2. SK Innovation Share Buyback: Execution, Dividend Projection, & Restructuring

2

SK Innovation’s latest share buyback represents 5% of the SO and is worth nearly ₩600bil. Two years ago, the company bought back 5M shares for about ₩1tril. That was the first time it did a share buyback. Then, this buyback marks the second time in its corporate history. The target is nearly the same, thereby bringing the total treasury shares to more than 10% of the SO. 

The buyback begins today and ends three months later before May 2. It is an all open-market buyback, and the company set the daily limit at 462,800 shares, which is 123.29% of the 1M DTV and 10% of the target. If it buys back an equal number of shares each day until May 1, it will be about 20% of the 1M DTV.

The buyback will increase the treasury shares to 10.4%, which will put the voting rights of SK Holdings at 37.3%.

3. Calisen IPO: Offer Price Indicates Discount to Base Case Valuation

Image 507437586171580483864774

Calisen is a meter asset provider. The company has orders to install nearly 6M electric and gas meters by end of 2024.

Calisen is expected to raise £300M at IPO at a price range of 225p to 265p valuing the company between £1.25 to £1.42B. GER values the company at £1.51B based on discounted cash flow or 7% above the high end of the price range.

In our previous note (Calisen IPO: Low-Risk Business Model at Attractive Price), we stated that Calisen offers near term growth potential and in longer-term a stable revenue profile with high EBITDA margins.  Our valuation analysis suggests that the IPO price range is attractive in the context of the company’s business model.

4. SK Innovation’s Big Share Buyback = Improved “G” In ESG

Skinnovation refining

  • Sk Innovation (096770 KS) announced a big share buyback program today. The company mentioned that it will buy back 4.628 million shares (5% of total shares outstanding) representing 578.5 billion won. The share buyback program will last from 3 February to 2 May 2020. 
  • We believe that this will have a major POSITIVE impact on SK Innovation in the next several weeks. We are including SK Innovation in our model portfolio. 
  • The share buybacks are an integral component in the “Governance” component of the ESG funds. Many ESG funds will view this big share buyback of SK Innovation to be quite attractive. Even the funds that do not have specific ESG mandates are likely to give higher positive points on this large share buyback program. 

5. Calisen IPO: Low-Risk Business Model at Attractive Price

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 Calisen is a Manchester-based smart infrastructure and meter asset provider (MAP). The company is privately owned by KKR and expects to list in early February. The company expects to raise £300M and KKR is also expected to sell a portion of its holding in IPO. The company intends to float 25% shares at a price range of 225p and 265p implying a maximum valuation of £1.4B.

Based on GER initial valuation, Calisen’s IPO is priced at a 5% – 20% discount to peer valuation.

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Brief Energy: Xinyi Solar Placement – Share Price Run-Up and past Deals Indicate that Discount Might Not Be Enough and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. Xinyi Solar Placement – Share Price Run-Up and past Deals Indicate that Discount Might Not Be Enough
  2. Weekly Oil Views: Brent Pierces $70 as US-Iran Tensions Boil Over. What Next for Risk Premium?
  3. WTI Breakout Levels and Energy Plays in Asia

1. Xinyi Solar Placement – Share Price Run-Up and past Deals Indicate that Discount Might Not Be Enough

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A few shareholder of Xinyi Solar Holdings (968 HK) aim to raise around US$235m via selling 4.3% of the company.

We have covered some of the earlier deals, links to which are below:

While the past deals have been mixed, most of the recent ones have done well. Although all of them were primary raisings while this one will be a pure secondary with management selling.

2. Weekly Oil Views: Brent Pierces $70 as US-Iran Tensions Boil Over. What Next for Risk Premium?

Benchmark Brent crude futures vaulted above the key psychological mark of $70/barrel in the early hours of Monday, January 6, as the US and Iran ratcheted up their war rhetoric.
While Iran has vowed to avenge the death of General Qassem Soleimani, the leader of its Revolutionary Guards’ elite Quds Force killed in a US airstrike in Baghdad on Friday, the timing, location or severity of any attacks is anybody’s guess. 
A big question for the oil market is whether Iran will target oil infrastructure or shipping in the Middle East region, as it did on a few occasions last year. 
For the time being, we are expecting Iran to go after US troops stationed across the Middle East, which means upstream oil facilities or transportation will not be the primary target.
However, given the increased instability and the tail risk of a major disruption in oil supply, the fear premium in crude could keep inching higher. 
What are the potential scenarios the oil market needs to keep in view, and how should one look at oil and gas producers and refiners when crude spikes in a war-like environment? We give you our take.

3. WTI Breakout Levels and Energy Plays in Asia

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W&T Offshore (WTI US) is pressing on key resistance at 64/65 after clearing the 60.50 breakout barrier. Increased Iran tensions favor a push through 65 to test the 67 high zone and will lift energy names in Asia. Above 67 would set sights on the 70-71 level for WTI.

This webcast runs through some break points in energy names in Asia with hurdle levels and targets. CNOOC, Petrochina, Inpex, PTT, Thai Oil and Beach Energy.

Petrochina, Thai Oil and PTT  are the most bombed out and demonstrate better intermediate risk to reward and upside potential on a WTI spike above 67. Thai Oil’s triangle offers explosive potential. Beach Energy shows good tactical risk to reward off of 2.50 pivot and the bull wedge.

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Brief Energy: SK Innovation Share Buyback: Execution, Dividend Projection, & Restructuring and more

By | Daily Briefs, Energy Sector

In this briefing:

  1. SK Innovation Share Buyback: Execution, Dividend Projection, & Restructuring
  2. Calisen IPO: Offer Price Indicates Discount to Base Case Valuation
  3. SK Innovation’s Big Share Buyback = Improved “G” In ESG
  4. Calisen IPO: Low-Risk Business Model at Attractive Price
  5. Weekly Oil Views: Crude Wilts as China Coronavirus Jitters Grip Market

1. SK Innovation Share Buyback: Execution, Dividend Projection, & Restructuring

1

SK Innovation’s latest share buyback represents 5% of the SO and is worth nearly ₩600bil. Two years ago, the company bought back 5M shares for about ₩1tril. That was the first time it did a share buyback. Then, this buyback marks the second time in its corporate history. The target is nearly the same, thereby bringing the total treasury shares to more than 10% of the SO. 

The buyback begins today and ends three months later before May 2. It is an all open-market buyback, and the company set the daily limit at 462,800 shares, which is 123.29% of the 1M DTV and 10% of the target. If it buys back an equal number of shares each day until May 1, it will be about 20% of the 1M DTV.

The buyback will increase the treasury shares to 10.4%, which will put the voting rights of SK Holdings at 37.3%.

2. Calisen IPO: Offer Price Indicates Discount to Base Case Valuation

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Calisen is a meter asset provider. The company has orders to install nearly 6M electric and gas meters by end of 2024.

Calisen is expected to raise £300M at IPO at a price range of 225p to 265p valuing the company between £1.25 to £1.42B. GER values the company at £1.51B based on discounted cash flow or 7% above the high end of the price range.

In our previous note (Calisen IPO: Low-Risk Business Model at Attractive Price), we stated that Calisen offers near term growth potential and in longer-term a stable revenue profile with high EBITDA margins.  Our valuation analysis suggests that the IPO price range is attractive in the context of the company’s business model.

3. SK Innovation’s Big Share Buyback = Improved “G” In ESG

Skinnovation refining

  • Sk Innovation (096770 KS) announced a big share buyback program today. The company mentioned that it will buy back 4.628 million shares (5% of total shares outstanding) representing 578.5 billion won. The share buyback program will last from 3 February to 2 May 2020. 
  • We believe that this will have a major POSITIVE impact on SK Innovation in the next several weeks. We are including SK Innovation in our model portfolio. 
  • The share buybacks are an integral component in the “Governance” component of the ESG funds. Many ESG funds will view this big share buyback of SK Innovation to be quite attractive. Even the funds that do not have specific ESG mandates are likely to give higher positive points on this large share buyback program. 

4. Calisen IPO: Low-Risk Business Model at Attractive Price

Image 35301700751580406501931

 Calisen is a Manchester-based smart infrastructure and meter asset provider (MAP). The company is privately owned by KKR and expects to list in early February. The company expects to raise £300M and KKR is also expected to sell a portion of its holding in IPO. The company intends to float 25% shares at a price range of 225p and 265p implying a maximum valuation of £1.4B.

Based on GER initial valuation, Calisen’s IPO is priced at a 5% – 20% discount to peer valuation.

5. Weekly Oil Views: Crude Wilts as China Coronavirus Jitters Grip Market

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Crude’s sell-off to three-month lows last week on fears of the China coronavirus outbreak hammering economic activity and dampening oil demand growth is likely premature and overdone.

Projections of a softening Chinese and Asian oil demand growth made at the height of the deadly SARS pandemic in Q2 2003 — when forecasters had critical information about the outbreak in hand — turned out to be erroneously bleak. A big rebound in oil demand in the second half of the year, after the disease had been subsided, also proved forecasts of a shallow recovery wrong.

The world is probably not much better today at projecting the course of a pandemic, much less assessing its economic impact. And we don’t even know yet whether the Wuhan coronavirus is on its way to becoming a pandemic.

Nonetheless, uncertainty is likely to remain in the driver’s seat and fear over softening oil demand is likely to join forces with an underlying bearishness on account of the US-China trade war that still casts a shadow on global growth. 

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