Blue Gem Research - Initiation of Coverage

Renergen Ltd – Initiation of Coverage – Lighter-than-Air Dropping to the Bottom-Line

Share Code: REN – Market Cap: R2.3m – PE: -34.9x – DY: 0.0%

Business Overview: Near-term Helium & LNG Producer

Renergen owns an onshore petroleum production right to the “Virginia Gas Project” that is rich in methane (LNG) and helium and the Group is developing in a two-phased approach.
Renergen is in a formidable position to move up the value-curve as Phase One nears first-production.
Importantly, the Virginia’s Phase Two could be multiples the size of Phase One and unlock staggering value in the Group.

LNG & Helium Markets: Attractive Prospects

South Africa is an energy-scarce economic region with both a good potential LNG demand and a potential supply deficit of the gas in its near-future as some existing assets come offline.
The global helium market is opaquer, but the recent drop-off in USA supply and uncertainty around Russia’s planned supply growth combine to imply tight(er) helium supplies post-pandemic. Finally, the major consumers of helium (aerospace, semiconductors & MRIs) are all above-average growth vectors and cannot substitute helium for anything else.

Forecast, Valuation and Implied Return: Upside Apparent

Our DCF-driven sum-of-the-parts (SOTP) valuation for Renergen implies Phase One & Two—offset by central costs, debt and (potential) dilution—are worth 3539cps. After options for Evander and Cryo-Vacc are added, we see Renergen’s share as potentially worth c.4247cps.
Rolled-forward by CoE, our 12m TP is 4977cps.

Key Up- & Downside Risks: Lots of Moving Parts

Running a sensitivity analysis on our model highlights that Renergen’s valuation is more sensitive to helium than LNG, but both prices are ultimately sensitive to the USD/ZAR rate.
Inflation, production, and resource risks also exist here.

Blue Gem Research – Initiation of Coverage