Cavendish Research

Cavendish initiated coverage on HHR on 1 October. It's on the HHR website but I don't know when it was posted. Cavendish are "issuer sponsored equity research" like MST. Some points from the report

- Target price- 12c (again)
- Phase 1- 8.5c ($244m risked)
Finance- "We are confident that HHR will be able to secure financing given the number of potential options open to the company with prepayments being the most likely"- "Our analysis shows Phase 1 remains NPV positive down to 30p/therm."
- "With a greater focus on energy security and in particular gas as a transition fuel, we believe HHR will draw attention from a suite of admirers potentially preventing HHR from fulfilling its un-risked equity value."

So Cavendish think that the project is robust, we should get finance and if we don't someone will likely take us over.

My interest is around the value of Phase 1. So comparing all the recent research reports off HHR website

	Research	Un-risked	Risk	NPV	SP/c	Date
1	Cavendish	$424	42%	$244	8.5	October
2	Euroz	$419	20%	$335	12	June
3	Bell Potter	$329	30%	$230	8.1	May
4	Auctus	$355	0%	$355	11	April
5	Average	$381		$291	9.9

I hope HHR will achieve finance and the Cavendish report hints at it also.

If it doesn't however and HHR need to divest an additional chunk of Phase 1 the research shows that Phase 1 has a risked value on average of $290m. Against an EV currently of around $40m $290 for Phase 1 seems out there but these are the research numbers. What is does show is that 40% of Phase 1 does have value and some of that value could be divested if HHR needs to.

So why the massive difference between the current SP and the research reports? The market is currently pricing Phase 1 risk at around 90% as against the research average of 23%. (EV/Unrisked Phase 1 $40/$381=10.4%)

So what does HHR need to do to close the gap and start to rerate? The two big levers are FDP and finance/divestment. C'mon Chris lets tick one off before Christmas!

GLTAH
DYOR