Avior Capital Markets - Montauk Holdings Ltd (19AW) MNK | Regulatory bliss

Report

Avior Capital Markets

Steph Erasmus

MNK | Regulatory bliss

Last night in the U.S., Democrats won control of the House of Representatives, a victory that gives the Democrats real levers of power to have a noteworthy influence on President Donald Trump and Senate Republicans decisions. The Democrat win decreases uncertainty surrounding the Renewable Fuel Standard (RFS). Montauk Energy (MNK) has reduced its reliance on the RFS by expanding into Californian pipeline quality renewable natural gas (PQRNG) from dairy farms. PQRNG from Californian dairy farms is more profitable than PQRNG from landfills. Therefore, we expect MNK to grow into the Californian PQRNG dairy farm space.

MNK is trading at a 19.4x rolled forward PE (1.6x PE relative) to our 2019 earnings. Our DCF valuation delivers a one-year target price of R128.8, implying a total return of 51.5%. The total return is 35.9% greater than our estimated market return of 15.6%. Accordingly, we maintain an OUTPERFORM rating.

08/11/2018 13 EN

Underlying

Montauk Holdings Ltd

Montauk Holdings Limited is a South Africa-based investment holding company. The Company is engaged in the development and operation of large-scale renewable energy projects utilizing landfill gas (LFG) in the United States. Its operations include the permitting, design, construction and operation of energy facilities utilizing LFG. The Company specializes in pipeline quality gas production; electric power generation; carbon reduction and offset credits; renewable energy credits, and LFG collection system operations. It has an operational platform of renewable energy projects in the United States, where the Company operates approximately 14 LFG sites. It offers services in the development, operation and management of LFG fuelled renewable energy projects through the provision of a service spanning operations, regulatory compliance, engineering, construction and back-office functions. The Company's subsidiaries include Montauk Holdings USA LLC and Montauk Energy Holdings, LLC.

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ZAE000197455 South Africa

Provider

Avior Capital Markets

Avior is a globally recognised capital markets research and trading firm, with the broadest research coverage within the region, with 100+ SA and 20+ SSA companies under coverage. Avior services clients from offices in London, Cape Town and Johannesburg.

Our research quality is consistently recognised in local and global surveys, with 18 analysts currently rated in their respective sectors (FM 2017). Value add through in-depth, innovative, high quality and consistent research with comprehensive underlying fundamental modelling supported by regular analyst and roadshow interactions.

Avior has proven that by working closely with our clients we can mutually develop dominant positions in certain sectors, going from strength to strength. Avior has a dedicated ESG team, having been ranked #1 in Corporate Governance research since 2008.

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Analysts

Steph Erasmus

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MNK | Regulatory bliss

Montauk | Trumped

Montauk | A pricing problem

Montauk | Misunderstood

Tiger Brands | ESG | Pressed to execute

SA Investment Strategy | Review of January 2020 for SA investors: Coronavirus weighs on the ZAR

SA Banks | Low credit risk in commercial property | Time to buy SA banks

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