Ann: NWE: Xanadu Discovery Update, page-64

From DJC.

Oil and Gas

Triangle Energy, (TEG)

Value Gap Between Triangle Energy (TEG) and State Gas Ltd (GAS)

16 November 2017

Current Price: $0.14

Recommendation: BUY
Price Target: $0.39

Key Points

• TEG own 47.8m (35%) shares in east coast focussed gas E&P company GAS which is currently worth $21m at today’s close.
• TEG total Market Cap is $27.5m at today’s close which means the market is pricing Cliff Head, Arrowsmith and the Xanadu discovery at a paltry $6m. Considering we have forecast TEG’s FY18 EBITDA number to be $7.5m (at US$50 oil), the core TEG business is trading below 1x EV/EBITDA which makes TEG very cheap at these price levels. TEG also has 2.7mmbls of 2P reserves with the potential upside of new infield barrels in the Cliff Head field and yet to be determined potential resources in the newly discovered Xandau field. By way of contrast, BRU has 2.08mmbls of 1C resources, and BRU has a market cap of $118m and a similar production profile of 1,000 to 1,200 bbls a day with both producers planning or working on doubling production. While we rate BRU highly, TEG’s oil assets are very undervalued in comparison.
• GAS has also been appreciating in price, and the TEG been weakening at the same time which has resulted in a disconnect between the value of TEG’s GAS holding and its core business.

Graph showing the divergence of the TEG and GAS share prices. Source: CIQ


In Conclusion

In our view, TEG is materially undervalued relative to its shareholding in GAS and the value of its assets. We maintain our BUY recommendation and a price target of $0.39 a share based on the current GAS share price.