Reiterate OW on higher oil prices
Hike 12M TP by c11%. We hike our 2019-20 EBITDA estimates by c40% to reflect higher oil prices, offsetting the 12% downward revision in 2018 Egypt output (expect flat growth y-o-y vs. +10% previously), based on 10 January 2018 guidance. We believe 2018 lacks output catalysts as further exploration is required at South Alamein concession (vs. our previous +2k boepd assumption), according to management. We expect similar magnitude of inventory drop in 2018 to that of 2017 (-35% y-o-y), as TGL secures 4 cargo lifts. Assuming no one-offs, net income is seen positive in 4Q17, with possible dividend distribution in 2018. Our valuation implies USD2.5/bbl on EV/2P, a 78% discount to peers, while the market puts the stock at an 82% discount.
2018 capex plan aims to sustain output. We hike our 2018 capex estimate to USD41.3mn, as per latest guidance (vs. our previous assumption of USD30mn), and assume USD20mn p.a. in 2019-22e to maintain output. 60% of the 2018 capex budget of USD29mn in Egypt will be directed towards development of producing concessions (Eastern Desert) to sustain production at 13k boepd. The remaining portion (USD11.8mn) is allocated to exploration of Western Desert concessions (no production yet). In Canada, USD12.2mn is allotted for development (USD2mn/well). We incorporate 15.8k boepd gross output on average between 2018-21e.
Maintain 500k boe inventory and USD62/bbl starting 2019. TGL forecasts inventory to come in at 800k bbl by end-2017 (beating our 1,000k bbl estimate). It says sales to EGPC and 4 cargo lifts would lead to 500k bbl inventory by end-2018, and this would be the new norm. We adjust Brent oil prices in our model to USD58/bbl in 2018 and USD62/bbl starting 2019 onwards (vs. USD55/bbl previously for 2018-19) based on Bloomberg consensus.
Production and reserves offer upside, risks of further impairment. TGL is heavily spending on exploration and is expected to announce a reserves update soon. This, along with output growth, may trigger the share price. Assuming 5% growth in 2019 output in Egypt hikes our 12M TP by 5%. Risks of further impairment persist if no commercial viable quantities of oil are found in Egypt.
TransGlobe Energy is engaged in oil and gas exploration, development and production and the acquisition of properties within the Arab Republic of Egypt and the Republic of Yemen.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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