Report
Steph Erasmus

Montauk | Trumped

On 9 Aug ‘19, the U.S. Environmental Protection Agency (EPA) reported the approval of 31 ('18: 35) of 40 ('18: 37) 2018 small refiner exemptions (SRE) applications received. The 31 approvals granted were ahead of our predictions of c.15 2018 SRE approvals. Renewable Identification Numbers (RIN) prices declined by c.60% over the past year, which may impact Montauk. The Group derives c.85% of its revenues from the sale of renewable natural gas (RNG) from landfills. The D3 RIN price contributes c.87% to the sales value of RNG from landfills. The EPA approvals shape our outlook for RIN prices, which influences our valuation of Montauk.

We estimate the counter is trading at a 15.8x rolled forward PE (1.12 PE relative). Our DCF valuation methodology delivers a one-year target price of ZAR 32.49ps, implying a total return of 35.4%. The total return is 23.1% greater than our estimated market return of 14.7%. Accordingly, we retain an OUTPERFORM rating.
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.

Provider
Avior Capital Markets
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.

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Analysts
Steph Erasmus

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