Monadelphous takeover of AnaeCo............?

IMO, Monadelphous (ASX:MND) are positioning to take over ANQ.

With Biological Ramp-Up Phase Commissioning Completed and MND party to the JV, as well as being the major shareholder in ANQ (15% stake), MND know the plant is working and will receive Practical Completion; and they want all of it.

Conversion of the loan they have with ANQ ($4.6m) is the first 'bite' (and they will get only one chance with that, as it will push their holding above 20% and trigger a takeover bid), so in theory the lower the price the better for MND (they'll get more shares for their loan conversion). However, with the SP where it is, even a 1 pip movement will result in a 25%/33% SP change. That's enough to light up the alerts/radars/stock filters on a huge number of trader's platforms and draw the attention to this stock that MND desperately want to avoid.

Anybody who gets wind of this and scratches below the surface will quickly see what some here already realise; that after a decade or more, this technology is finally coming to fruition, with a commercial potential that dwarfs the current market cap. MND stand to acquire all the pipeline projects on the table with ANQ; City of Shoalhaven Project in NSW, 200,000 tonnes pa project in South Australia, China (Dynagreen), India (Brisanzia), Iraq (Repindo), etc. plus all the international patents ANQ have recently received.

For MND it has been a case of slowly, slowly catchee monkey. That's why we had all those small value orders keeping the close and open prices static over the last few months. Keeps this stock ‘under the radar’, no alarms are raised, etc and MND can sneak in at the 11th hour and snatch the gold.

Also, with the loan conversion rate dependant on VWAP, MND have previously taken every opportunity to increase the volume traded at these low prices. Hence why when the buy side built up, they sold into it. Sure they lost some shares, but in the larger scheme of what it means for the volume they will receive at conversion, it is a small price to pay.

With today’s announcement though, as gavo said “the cat is out of the bag”. MND will need to cap this desperately or make their move very soon.

Once they complete the loan conversion, it'll be a scramble for what's left, as remaining (and new) shareholders position to capitalise on the upside from the offer that MND will have to make. Perhaps this is why we have our recent addition to the Top 20 holders – Lippo Securities Holdings Limited (http://www.lipposec.com/ - Lippo Group total assets valued at HK$22.8Billion)

With the remainder of Top 20 shareholders, they will know what this is worth now and want their fair value before they hand it over to MND. Looking at what they would have paid the offer should be well north of 2c at least and heading toward 3-5c if we were to actually get fair value:

VALUATION

References

• AnaeCo 2013 Investor Presentation
• RM Research Analysis – AnaeCo – 1 Mar 2013
• AnaeCo Annual Report 2013
• AnaeCo Annual Report 2014
• ASX Announcements

Base Notes / Assumptions

“AnaeCo’s main product is licensing and technology transfer of the DiCOM™ System. In our model we assume that for a typical project AnaeCo will receive a one-time payment of A$16M (company provides a range of A$15M – A$20M) in aggregate for Design & Commissioning fees, supply of the Process Control System and DiCOM™ Licensing fees (Fig.4). However, we believe first revenues could also come from execution of detailed feasibility studies (DFSs) as the company progresses its business development activities (i.e. MoUs, etc).”

“We also include recurring profits in our model which AnaeCo will receive as royalties and technology support fees (we estimate A$5/tonne per annum).”

“Down the road, management is also aiming to sell regional licenses for the DiCOM™ technology, thus building the local ecosystem in these regions required to develop local projects and thereby providing the necessary scale to increase the overall momentum of DiCOM adoption.”
Annual Expenditure:

• Indirects (Core Staff, etc): $2m
• Directs (Project Delivery): $8m

Shares on Issue: 2.56b
P/E: 12 (personally I think it will much higher for this given the start-up phase of the Company, but I’d rather be conservative)
‘Typical’ Project is 50,000tpa Site (WMRC in Shenton Park is 55,000tpa)

Valuations

I’ve done valuations based on the number of ‘typical’ projects received each year:

1 ‘typical’ project:

Income: $16m, plus royalties of (50,000 * 1 * $5) = $16.25m.
Costs: $2m + $8m = $10m.
Net is $6.25m.
Market Cap (MC): $75m ($6.25m x P/E of 12)

Share Price (SP): 2.9c ($75m/2.56b shares)

2 ‘typical’ projects:

Income: $32m, plus royalties of (50,000 * 2 * $5) = $32.5m.
Costs: $2m + (2*$8m) = $18m.
Net is $14.5m.
Market Cap (MC): $174m

Share Price (SP): 6.8c

3 ‘typical’ projects:

Income: $48m, plus royalties of (50,000 * 3 * $5) = $48.75m.
Costs: $2m + (3*$8m) = $26m.
Net is $22.75m.
Market Cap (MC): $273m

Share Price (SP): 10.7c


All just my opinion/hypothetical of course…J

Cheers

Freighter