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SacOil shares have potential for re-rating

SacOil shares have potential for re-rating

Edison Investment Research sees potential for SacOil Holdings’ (LON: SAC, JSE: SCL) stock to re-rate upon further announcements on operating success in Nigeria or the democratic Republic of Congo.

The research house said in a note that the shares trade at a substantial discount to its core net asst value of 19 pence for SacOil. The stock currently stands at 4 pence.

“The discount is likely to persist while current market conditions are not favouring risky junior plays. However, imminent funding issues have been eased,” it said.

Edison referred to the US$25 million equity credit line funding facility with Yorkville Advisers which the company secured in October, and the farm-out deal with Total in March.

SacOil’s 50 percent owned subsidiary Semliki SPRL sold Total a 60 percent stake in Block III, which is in the Albertine Basin in the DRC. SacOil retains a 12.5 per cent stake in Block III.

The farm-out allowed SacOil last week to report a 657 percent year-on-year rise in headline earnings for the first half, at the top end of its 640-660 percent rise forecast announced only shortly before the results statement.

The group made headline earnings of 38.7 million Rand for the six months to August 31 2011, compared with a loss of R6.95 million a year earlier.

“Our fundamental assumptions remain unchanged, but we have revised earnings to reflect the strength of the South African rand. Overall, our 2013 EPS estimate rises by 3 percent. The step change in the 2013 forecast assumes full operation of the Greenhills manganese plant, the exchange rate movement as well as the reduced external funding need,” Edison said.

Source: Proactive Investors

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