Anyone who still believes in the perfect efficiency of markets must have been pretty torn up to see little AJL rise 20% on news that every single person on this board had seen coming for over a month. Osborne, Cameron, and even Davey had all signaled that shale fracking would get the go ahead weeks ago. This should have been well-anticipated in the shares of AJL such that the announcement was a non-event for the stock. More evidence that these shares aren't priced rationally.
While the market may be focused on the return to fracking which ultimately will lead to the generation of flow rates, the real big story in the short-term has little to do with all of that. The truth is that this event has just compressed the bid/ask spread in a meaningful way for AJL's unconventional assets in Europe making a deal more likely.
A monetization could have three major impacts for Lucas equity investors; 1)most importantly it could allow AJL to dramatically recapitalize its balance sheet, removing much or all of the debt overhang (and any ill-founded belief that asset seizures would take place); 2)it would force the market to deal with a hard number value placed on either the Bowland license or on Cuadrilla, implying dramatically higher equity prices; and 3)it could signal a way forward for AJL through the promise of additional monetizations and/or reduced capital commitments.
Anyone selling their shares at 90c is thinking like the market. They see the big deal, but they don't see the correct big deal. They think that now that the approval is priced-in, it will all come down to execution and flow rates and they don't want that risk. But when equity is as mispriced as AJL, the real big deal is simply that there is now a way out of what was a huge mess.
AJL Price at posting:
80.9¢ Sentiment: LT Buy Disclosure: Held
