Antares terminates sale
Recommendation
Antares Energy has declared it will terminate an expected asset sale announced last year. The agreement, which would have granted the company US$300m in cash for all its Permian Basin assets, was expected to be completed this month, so news of its sudden termination is a surprise.
Although the market has rushed to sell the stock - it fell 20% this morning - it may pay be to be patient rather than rash. The sale wasn't fully valued by the market and today's fall is likely to be an overreaction.
Our initial buy case back in Antares Energy: Shale we dance? (Speculative Buy – $0.48) had nothing to do with the sale. We argued Antares’ assets had inherent advantages, that they were delivering cash and were undervalued. That is unchanged. The promising Northern Star asset, in particular, has generated better than expected production rates. If developed, we expect Permian Basin assets to be worth more than the sale process would have delivered.
There is more to a business than assets, however. The sudden withdrawal from a deal always said to be complete and binding has us questioning the integrity of management. The company must now renegotiate a financing facility, which it was previously paying off, to be able to complete development. Antares needs more cash to realise the value in its fields. This outcome isn’t a terrible one but the manner in which it has occurred is troubling. Shareholders deserve better treatment than a sentence buried at the back of an announcement saying 'we've changed our minds'. Your analyst, a shareholder in the business, is unimpressed.
We are waiting to speak with management and gain more information about recent drilling. Following that, we will provide a fresh recommendation. The share price has fallen 20% since Antares finalises sale (Speculative Buy – $0.51) and, while we complete more work, the company remains UNDER REVIEW.