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I would like to think that in September SAVP will upload an updated presentation and/or AK will be visible promoting the post deal company.
Yes both measures FCF to Firm and FCF to equity exclude interest but there are subtle differences between the two and when reading accounts with complex loan and capex structures it is important to understand which is being reported.
This is a useful link.
https://www.investopedia.com/terms/f/freecashflow.asp
Trek, accounting for differences.
I suppose, answering my own question, the size of the existing Seven E debt at 875mn USD, precludes much FCF after debt service, if any at all, hence no need to consider as significant what is happening with this cash flow until the deal is completed and the debt is restructured formally.
I do note that approx 47mn USD of this debt is assumed to be repaid each year, starting in 2020, s cash flows ramp up, with a large jump expected in FCF in 2021. So to fully realise the cash flow generation potential of Seven E within SAVp, as well as the huge opportunity at Niger, investors do really need to have a multi-year holding attitude.
FCF forecasts should always be calculated after interest costs.
I'm afraid I may have opened a can of worms with this question.
If SAVp is taking on an 80% share of the US$575mn debt remaining after restructuring in Accugas and Uquo, my gut reaction is, what FCF, after debt service? But then we need to know the comparative orders of magnitude of both the gross cash flow of these acquired assets and the annual debt service costs. If GCF comfortably exceeds debt service, which Hannah implies is the case, then Zengas' earlier post and enquiry seems to suggest that while we are waiting for the Seven E deal to close, that 575mn of debt is being reduced as cash flows have already been generated one the last 18 months or so since the deal was announced.
Zengas, are you around to clarify?
O&W - this was from Zengas on 19th August:
'Last time I enquired about what was happening to ongoing cash flow it was supposedly also reducing debt so beneficial to us ultimately anyway as Savp takes it over. '
This is from the recent Hannam report:
SAVP will also take on its 80% share of US$575mm of gross debt
relating to Accugas and Uquo.
This is from the 2017 Admission document (page 35-36):
2. The Capital Restructuring
2.1 The Seven Energy Group’s existing indebtedness is US$887 million at 30 June 2017 and this is spread across eight separate facilities. The Capital Restructuring will involve a US$334 million reduction in the Seven Energy Group’s existing indebtedness in exchange for a combination of new debt facilities, cash and newly issued Ordinary Shares. It has been agreed that around 85 per cent. of the reinstated debt will be repositioned in Accugas, with no recourse to the Company or any other assets of the Enlarged Group (save as set out in paragraph 2.3 below).
Any the wiser?
Would be good to have a proper update from SAVP on this debt to be taken on.
Hi OaW,
The only clarity is in the last accounts which is basically a forecast.
“ Enhancement of acquired assets' NPV10 by 35%, and of the associated forecast cash flows by an average of 58% over the 2019 - 2022 period, as reviewed by Savannah's Competent Person[1].”
So as Hannam says, significant FCF is dependent on 7 closure, this aligns with the audited accounts.
Atm we are basically dependent on the placings and revolving credit facilities to keep the lights on. So my interpretation is there is no FCF from deal commencement to completion.
One to watch out for is how FCF is reported, there are two measures, one before debt repayments and one after. The reason I state this is because of where we are on the growth curve. 7 is absolutely key and it’s the cashflow risk and a fear of placing that has depressed the sp. But this is set to change, significantly.
Trek, jam tomorrow with cream and a cherry on top!
"Once the Seven Energy deal closes, Savannah will start generating
significant FCF with plenty of further growth optionality."
Can someone please clarify the position of all the FCF generation from deal commencement up until deal completion? i.e. does SAVP accrue this FCF? The Hannam report merely suggests that SAVP receives this from the (future) deal completion date. Big big difference!!!
'' Investment case
Savannah offers a combination of solid FCF generation funding cash returns to
shareholders, growth from new developments and exploration upside.
Savannah now trades at a 74% discount to our risked NAV of 84p/sh after significant
under-performance, despite material exploration success.
There are plenty of catalysts, most importantly the closure of the Seven Energy deal and first oil in Niger, to narrow the discount. We think the market is over-estimating the risk profile of the company and with time will acknowledge the stable cash flow from gas sales in Nigeria, notably underwritten by payment guarantees from the World Bank.
Once the Seven Energy deal closes, Savannah will start generating
significant FCF with plenty of further growth optionality.
Niger discoveries should provide a second leg of cash flow, in a country with a very supportive Government and benign operating environment.
In Niger there is the potential for further exploration success but more importantly we see an early production system going ahead shortly, generating revenue in early 2020. ''
https://gallery.mailchimp.com/110d0aa5f5d9bf9478796664e/files/622fcf2b-8549-4210-9c51-46e8fb507fba/Savannah_Note_Aug_19_new.pdf?utm_source=H%26P+Master+Contact+List+%28Sements+and+Tags%29&utm_campaign=00987e82d3-EMAIL_CAMPAIGN_2019_07_02_10_23_COPY_02&utm_medium=email&utm_term=0_dd4f91613c-00987e82d3-98981107
Very interesting read. I see they value Acaugas at 58p risked. You can see why they wanted more of this business in the deal.
Imagine if they can maximise the spare output thats available in the gas network. The potential could be huge.
It does make you wonder what the upside could be here. I believe that some staff have share options at 42p and 60 something . Its possible these could be hit near term. Time will tell.
Thanks for posting Lobon.
There is an unrisked target of 185p which includes Accugas ahead of 5 Niger frills and Uquo.
Notably it only includes our own Uquo area low risk exploration of 96.5 mmboe gas and just 5 more of the prospects in Niger ie Amdigh deep, Eridal North, Kunama West, Etifal and Mujia.
The 5 Niger wells are targetting a combined 167.4 mmbls unrisked at 60.4p. 3 of these are at least in the sweet spot adjacent to and under existing discoveries.
There is still a further 108 mapped (so far) Niger prospects to drill beyond that.
If 167.4 mmbls unrisked carry a target of 60.4p, then the total 4 billion+ bls unrisked would equate to circa £15.00. (If farmed out at 30-50% = £7.50 - £10.50 unrisked plus Nigeria ops of a further 125p unrisked).
The 2.8 billion bls risked recoverable figure - ie 2660 b/bls net 95% interest would equate to £9.60 (If farmed out at 30-50% = £4.80 - £6.70 target to Savp plus Nigeria ops risked @ 102p) .
An overall risked target on a 30-50% Niger farmout along with Nigeria Ops = 580p - 770p. (For Unrisked see above).
You can see how there is significant room to farm out 30-50% and still have significant upside as well as benefitting from the reduced drilling costs and any net cash inflow it would bring.
Also with significant cash flows this makes no account of any new acquisitions/partnerships in the next 2 years or future share buy backs etc of which i've based my 200p target and using circa 1b shares in issue .
200p target is barely 5 X the average that the institutions have paid and under 5X for the board incentives.
Savannah now trades at a 74% discount to our risked NAV of 84p/sh after significant
underperformance, despite material exploration success. There are plenty of
catalysts, most importantly the closure of the Seven Energy deal and first oil in
Niger, to narrow the discount. We think the market is over-estimating the risk
profile of the company and with time will acknowledge the stable cash flow from
gas sales in Nigeria, notably underwritten by payment guarantees from the World
Bank. Once the Seven Energy deal closes, Savannah will start generating
significant FCF with plenty of further growth optionality
What an amazing read. Often one would post highlights, it’s all highlights! Even the current sp is a highlight a massive opportunity! Trek