| • From a low of 21.5 cents in July 2023, Geo Energy stock has surged 56% to 33.5 cents recently. The key catalyst is likely the acquisition of Jakarta-listed PT Golden Eagle Energy Tbk (“GEE”) and unlisted PT Marga Bara Jaya (“MBJ”). • Prior to the acquisition of Golden Eagle Energy, which sharply increases Geo Energy's coal resources, no analyst was covering Geo Energy for quite a long while, presumably because fossil fuel companies are best kept at a distance out of ESG concerns.
It is informative, reinforcing an investor view that coal miners will reap strong cashflows as supply is reined in by a lack of financing support owing to ESG considerations while demand stays resilient, especially in Asia. • Out of the expected strong Geo Energy cashflows, KGI forecasts 2.5 S'pore cents a share dividend for FY2023 (9M2023 has brought in a total of 1.4 S'pore cents a share). It's a hefty 5.5 cents and 9.7 cents in 2024 and 2025, respectively. Read on... |
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Excerpts from KGI initiation report
Analyst: Alyssa Tee
We initiate an OUTPERFORM recommendation with a TP of S$0.80, based on a DCF valuation method with a WACC of 13.5%.
Weather uncertainties and execution risks may also impact production. |
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Investment thesis
| Strategic Acquisition Boosts Geo Energy's Long-Term Value |
Geo Energy's recent strategic acquisition of GEE and MBJ positions the company for significant long-term growth and value creation.
The move secures 275 million tonnes of high-quality coal reserves, extending mine life by 10-15 years and allowing for a production capacity of up to 25 million tonnes per annum.
The acquisition is accretive based on independent valuation and strong future cash flow prospects.
Valuation and pricing considerations include an arm's length negotiation, recognition of market prices, and potential cost savings.
Profitability and cash flow projections indicate expected cash profits per tonne at different coal prices, with a targeted cash cost of 25-30 USD per tonne and a projected cash profit of 20 USD per tonne at a 55 USD per tonne coal price.
Market dynamics highlight the high demand and limited new supply for TRA mine coal, aligning with the shifting trend toward higher-quality coal in the thermal coal market.
The acquisition enhances profitability through premium coal quality, cost optimization, and operational synergies.
Geo Energy commits to at least a 30% dividend payout, providing consistent income for investors.
| The company's focus on diversification and high-quality coal ensures resilience in a changing energy landscape, strengthening its competitive position and offering attractive returns for long-term investors. The acquisition, supported by independent valuation and robust cash flow prospects, reflects Geo Energy's commitment to maximizing shareholder value through a balanced approach of dividends, buybacks, and long-term growth investments. This presents a clear opportunity for Geo Energy to leverage its financial strength and expertise to acquire existing mines, expanding its production capacity and solidifying its market position in the long run. |
Full report here.
