Antares finalises sale
Recommendation
Antares Energy has announced that the sale of its Permian Basin assets has been finalised. An unknown party (is it you, BHP?) has entered into a binding agreement and will pay US$300m (or $1.25 per share at today’s exchange rate) to Antares by 14 January 2014.
After repaying debt and paying some tax, Antares will be left with around $0.75 per share in cash. With a current share price of $0.51, shareholders have two questions to answer before piling in: why does such a large discount exist and will it persist?
Key Points
- Sale of Permian Basin assets finalised
- Company trading at a 32% discount to cash backing
- Outcome dependent on management nous
As explained in Antares Energy on sale on 26 Jun 13 (Speculative Buy - $0.47), the company's cash pile will be its sole asset of note. Having bought, developed and sold assets before, we suspect management has already identified another asset and is ready to pull the trigger. Shareholders should not expect a large cash return, as this is not a cash box waiting to be emptied.
Continuing to hold today is a bet that management won’t do anything silly with the proceeds of the sale. If that is a bet you are uncomfortable with, selling now to lock in a profit is sensible.
With an impressive track record of buying and developing assets for profit, we’re comfortable backing management while such a steep discount persists. Asset values in the resource industry have fallen dramatically and US$180m will buy more today than it has in the recent past. It’s an ideal time to be cash rich in search of a project.
While it’s sensible for the share price to trade at a discount to the value of the sale price, the 32% discount implied today appears high. It implies the market is still concerned about the sale or how the proceeds will be spent. That caution should not be ignored, as few details about the sale – the counterparty, the timings of the cash flow, any additional conditions – have been announced and potential acquisition targets remain a mystery.
Yet with the business backed by about US$180m of cash (a sum that will be affected by the movement in the USD/AUD exchange rate), the downside appears relatively low, at least in the short term. We don't recommend chasing the share price too far above 50 cents, but as the share price is only marginally above 50 cents for now we're sticking with SPECULATIVE BUY.