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Published May 29, 2014
Hot stocks: RH Petrogas extends gains on possible takeover
In an announcement to the Singapore Exchange yesterday, Goodpack said that an affiliate of KKR is making an offer for shares held by Goodpack' s shareholders at $2.50 per share - PHOTO: REUTERS
RH Petrogas shares continued uptrend on Thursday, underpinned by hopes of a possible takeover even after the company had said no binding offer has been made.
Its shares opened at S$0.905 and quickly climbed to S$0.925, up 3 cents, or 3.3 per cent by 10:20 a.m.
RH Petrogas shares have been on a steady rise since May 12 when they were trading around S$0.645 each. It reached S$0.77 on May 19, and S$0.855 the next day, prompting SGX' s query on May 20.
In response to SGX, RH Petrogas said it understood from the controlling shareholders of the company, namely Surreyville, Sharptone Investments and RH Capital, that they have been approached by an investor and have engaged in discussions regarding a potential proposal which may lead to a takeover offer of shares in the company.
RH Petrogas - Potential Takeover Offer On The Cards
Written By Stock Fanatic on Saturday, May 24, 2014
Petrogas&rsquo controlling shareholder has been approached by an investor and the ongoing discussions could lead to a takeover offer. Our model estimates the liquidation value of the company&rsquo s assets at SGD0.95/share. We see the approval of the Fuyu-1 ODP and the ongoing strong production ramp-up as significant attractions for potential investors.
Maintain BUY and SGD1.23 TP.
■ Potential takeover offer
In response to an SGX query, RH Petrogas said that its controlling shareholder has been approached by an investor. It also said that both parties have engaged in discussions regarding a potential proposal that may lead to a takeover offer of shares in the company. Note, however, that no formal offer has been made as yet.
■ Potential offer price above SGD1.00/share
Based on our model, the liquidation value of RH Petrogas&rsquo oilfield assets is SGD0.95/share, which implies EV/(2P+2C) of USD6.70/barrel of oil equivalent (see Figure 2). The company could be worth significantly more on a control basis to a takeover buyer.
■ Clear rationale for purchase
According to our model (see Figure 1), the Fuyu-1 field accounts for 46% of RH Petrogas&rsquo equity value. The approval of the Fuyu-1 overall development programme (ODP), which is expected in 1H14, should clear the final hurdle for full development of this large oilfield. It should also significantly raise the company&rsquo s market value and cash flow expectations. Another key attraction should be RH Petrogas&rsquo rapidly-increasing production levels, which were at 4,100 barrels of oil equivalent per day (boepd) in FY13 and are now probably at c.4,400boepd. We also expect the company to make some valueaccretive brownfield acquisitions this year, which have not yet been imputed into our model.
Technical Analysis
| Daily Chart |
■ Maintain BUY and SGD1.23 TP
While the discount on RH Petrogas has narrowed significantly since our last update, we believe that there is significant upside from here should an offer come through. The downside may see eventual support from the approval of the Fuyu-1 ODP and of the plans of development for the upcoming Indonesian fields. Maintain BUY and SGD1.23 TP, which is based on our NPV-and-risking model. ( report)
DYODD