Recommendation A 5 for 16 right issue, priced at $1.00/share is intended to raise from $100m to $133m for Bandanna Energy. The purpose of the raising is to assist funding of development of key projects including securing capacity at WICET stage-I and rail access. Our DCF value and risked target prices have, after including additional expenditure for securing infrastructure capacity, been diluted to $2.53/share and $2.09/share respectively, and with the target price at a 83% premium to the theoretical ex-rights price, our BUY recommendation is retained.
Key Points �� BND has proposed an accelerated non-renounceable 5 for 16 rights entitlement issue at $1.00/share, to raise up to $133m. These funds are to be used to develop key projects and to secure allocation of port capacity at WICET stage-I and to secure associated rail allocation. �� The offer price ($1.00) is at a 16.0% discount to the pre-offer share price and at a 12.6% discount to the theoretical ex-rights price (A$1.14/share). �� BND?s offer is underwritten to $100m. �� BND has a near term requirement to enter into a Take-or-Pay agreement with WICET and to provide associated bank guarantees related to port capacity. �� In our valuations we have previously, and still do, assume that BND will need, in the absence of introduction of JV partners into key projects in the Bowen Basin, to raise further equity to develop the Springsure Creek and Arcturus projects, and potentially for the South Galilee project. Accordingly we have included the present value of the nominal equity to be raised in the future and diluted for these forecast equity raisings. �� BND indicates the uses of funds includes $56m for WICET stage-I and Gladstone PSA cash-backed bank guarantees, $43m for above & below rail cash-backed bank guarantees, and anticipated $41m-$74m for drilling, exploration and feasibility studies. �� With the successful completion of this funding exercise BND expects to be able to fund project expenditures through to June 2012. �� Assuming that the entitlement issue will be fully subscribed, the effect of the placement and is to dilute our un-risked DCF value by 9% to $2.53 /share, and out risked 12 month price target by 12% to $2.09 /share. �� The target price is at a 83% premium to the theoretical ex-rights price $1.14/share. We retain our BUY recommendation for BND. �� We look forward to the potential for BND to conclude Joint Venture terms on its key Springsure and Arcturus projects to be realised, which would reduce our forecasts for BND to need to raise further equity to develop its key projects and reduce further associated forecast dilution that is embedded in our valuations.
BND Price at posting:
$1.05 Sentiment: LT Buy Disclosure: Held
