Investment ThesisHZN’s strategy is to: • Maximise free cash flow from its current producing assets.• Make further distributions to shareholders.• Continue to invest in existing assets to maximise production and field life while keeping an eye out for opportunities to pursue value enhancing investments.On the basis of our production, operating cost and oil price forecasts combined with our forecast capital expenditure over the next three years of ~US$12m per annum, we are comfortable with our free cash flow per share forecasts in FY24, FY25 and FY26. Thus, we are forecasting FY24, FY25 and FY26 forecast distributions of A$0.04 per share implying a 26% dividend yield. We note HZN stated in the quarterly that “rapid cash build encourages us to consider further distributions” which may indicate MST are being conservative in the near term.ValuationOur fully diluted base case valuation for HZN is unchanged at ~A$0.19 based on a FY24 oil price forecast of US$83/bbl and an AUDUSD exchange rate of 0.66.Our low and high oil price valuations (FY24 of US$73/bbl and US$93/bbl) scenarios for HZN derive sensitivities of A$0.17 and A$0.22. RisksThe key risk to our forecasts and valuation are the asset production volume forecasts, future development costs and project execution, and the forecast oil price
HZN Price at posting:
15.5¢ Sentiment: Hold Disclosure: Held
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