Bakrei Bros. like Sengkang gas, page-7

Mikey5

The report is on EWC's website.

They arrive at an EV of US$2.1b on $80m FCF for 2022 and $110m before maintenance capex. EDITDA is about $120m Current debt (2019) is given at $530m and the WACC is 3%. Ignore the dates due to further delay. They estimate revenues of $244m in three years.

Some questions:

1. Will EWC achieve a FCF of $80m? or similarly an EBITDA of $120m in three years.
2. Is EV/EBITDA of 17.5x reasonable?
3. Would you invest in EWC for a 3% return?


I do not know the answer to 1. It will be some mix of the surplus from the PSC (half of which has been given to the Bakries), the PPA, the LNG, and power sales in the Philippines. The quickest and dirtiest valuation I am be bothered with is assume all the gas goes to the power in Sengkang and Pagbilao. There should be about 8m mwhr produced. The revenue from this will be $50-$80 mwhr. So they might get to $400m-$500 revenue. What margin to apply? The biggest cost is gas. The capex is sunk. They are currently roughly making 65% on indonesian gas, and 45% on power. They have halved the margin on gas by bring in Bakrie. So on $400m power sales they could be making $180m. The gas cost is probably 75% of the $220m total cost of power (currently 80%), so gas segment could be making another $165m - reduced to say $80 due to Bakries 50%. So rough and ready target EBITDA of $250m.

The answer to 2 and 3 must be "hell no". The only investor that might invest at that cost of capital will be a very big insto, or possibly a competitor whose shares are valued using this sort of wacc/multiple. Except in the current world which is burning up - I do not see that anyone paying that. The core idea of using modular LNG trains is long gone. SE is now salvaging what he can from the original concept.

I think I would be looking a multiple of closer to 6-8x and would still be concerned I am too generous. So use $250m (untested guess), I get equity value of US$1,000m to US$1,500 -about A$1,300m - A$2,000 - about $0.50 - $0.80 cents a share.

Of this dirty calculation, I am most worried that I am miles out on the EBITDA. Problem is we can make reasonable guesses about electricity prices, but it is tricky to get to how much EWC get to keep.

So unless things go nuts for this name in the next year or so, but assuming they finally achieve their goals - we are looking at a 4x to 5x return on current share price. This I would suggest is the bare minimum expected return given the record over the past 10-15 years.