nxs site jan 09 report, page-10

Investment Summary
• Short term funding continues to be a concern for NXS, selling
up non-core assets in order to secure cash. Last years farm-out
of AC/P41 provided ~$70m, netting a cash balance of $35m as at
20th November 2008. The additional funds were required in order to
satisfy equity requirements for the $160m Longtom Project debt
facility. This month NXS cashed in its 56.5 m shares in ROC to
further consolidate its position. The NXS November AGM presentation
states that equity already contributed plus the debt funding in place
are sufficient to bring Longtom into production by mid-2009,
however we eagerly await the quarterly report to clarify this issue.
• Crux farm-out process critical. NXS continue to progress farm-out
negotiations in order to sell down its 85% stake after a previous deal
with Mitsui for a sale of 25% of the project fell through. Its likely NXS
will be required to relinquish a greater % in order to attract a buyer
and to pocket sufficient cash to fund its remaining interest in the
development. NXS has indicated that the process should be complete
by late January to early February.
• Libra-1 drilling results indicate that the Libra structure is
separate to the Crux field. While the drilling results indicated that
the accumulations are separate fields the well encountered a gross
206m gas column which was in line with pre-drill estimates. We await
further news on interpretation of the results.
• Longtom on track for first gas mid-2009. Installation of the
pipeline and subsea tie-in works are on track for early 2009 with
onshore plant upgrades likely to be on the critical path. NXS has
indicated that its first-gas target of mid-2009 remains on track.
• We maintain our BUY recommendation and a price target of
$1.74/sh but highlight that this is a speculative BUY with
funding an ongoing risk. A timely and successful farm-out of Crux
is required to de-risk NXS and to guarantee that it can fund its
contributions for the development. Further, while short term funding
issues for Longtom appear to be resolved, funding and execution of
Longtom remain a risk. However, subsequent to a revised farm-out
of Crux, we see substantial upside with a better reflection of the
value of these assets in the share price.
Update on Key Issues
14 January 2009
12mth Rating BUY
Price A$ 0.46
Target Price A$ 1.74
12m Total Return % 282.0

RIC: NXS.AX BBG: NXS AU
Shares o/s m 645.4
Free Float % 100.0
Market Cap. A$m 293.6
Net Debt (Cash) A$m 103.4
Net Debt/Equity % 22.3
3m Av. D. T’over A$m 2.32
52wk High/Low A$ 1.95/0.34
2yr adj. beta 1.81
Valuation:
Methodology NPV
Value per share A$ 1.74
Analyst: Scott Simpson
Phone: (+61 8) 9263 1679
Email: [email protected]

Year End June 30 2007A 2008A 2009F 2010F 2011F
Reported NPAT ($m) 35.8 24.9 209.4 16.9 82.6
Recurrent NPAT ($m) 35.8 24.9 (0.6) 16.9 82.6
Recurrent EPS (cents) 7.6 4.4 (0.1) 2.6 12.8
EPS Growth (%) na (41.6) na na 389.6
PER (x) 6.0 10.3 na 17.5 3.6
EBITDA ($m) 47.9 33.2 4.7 56.1 190.4
EV/EBITDA (x) 5.3 13.8 108.8 12.9 3.8
Capex ($m) 48.6 101.5 354.2 297.4 30.7
Free Cashflow (146.0) (310.7) (501.5) (285.4) 65.7
FCFPS (cents) (30.9) (55.3) (77.5) (44.1) 10.2
PFCF (x) (1.5) (0.8) (0.6) (1.0) 4.5
DPS (cents) 0.0 0.0 0.0 0.0 0.0
Yield (%) 0.0 0.0 0.0 0.0 0.0
Franking (%) 0.0 0.0 0.0 0.0 0.0