EUR 24.40 For Business Accounts Only

Raise TP by c26%; Remain Overweight

Positive developments continue to flow in. EKH upped guidance for NatEnergy’s household gas connections to 160-180k p.a. for 2018 and thereon, from 100-120k p.a. This is notable compared to the historical rate; 2011-17 average was 80k p.a. with a peak of 110k in 2016, and comes on the back of a stronger drive by the government to extend the country’s natural gas grid (backed by improved domestic supply of gas), to replace costlier butane gas cylinders. Instilling a commercial team at NatEnergy has also allowed the firm to extract a higher client base across its concessions. This, alongside: i) progress on EKH’s USD114mn MDF (medium-density fibreboard) greenfield, and ii) a 15% minority buy-out at its gas concession to 99.9% ownership, leaves us raising our SoTP by c26% to USD1.30/share, maintaining our Overweight call. Excluding net cash of USD258mn from EKH’s market cap puts the stock on a 2018e P/E of 6.6x, with a 15% 2018-20e EPS CAGR.

Gas reserve base in early days. While non-core sales are mostly out the way (what remains is marginal in size, totalling c3% of our SoTP, or difficult to exit, as BMIC), EKH is unique in offering several avenues where it could surprise. The most imminent, and potentially the largest source of upside, could be afforded by reserve additions at EKH’s now 99.9%-owned offshore gas concession, ONS. We currently value ONS on the current 1P reserve base of 113bcf, at an EV of USD7.6/bbl. Come end-September, any additional 2P reserves from an ongoing seismic survey, followed by completion of exploratory wells (costing USD10mn, already provided for in 2017), could yield additional shallow or deep water reserves. A previous internal assessment showed c288bcf of additional shallow water reserves, which, if confirmed by the survey, would raise our SoTP TP by 15%.

Approvals for MDF greenfield advancing. Following a successful 66-feddan pilot project and, according to the company, imminent land allocation, we now include the MDF greenfield in our SoTP, adding USD0.06/share, or 4.5%, with our DCF implying an EV/EBITDA multiple of 4x once in full operation. Construction is due to begin in 3Q18 and commercial operations by 4Q19.