Metals & Mining, Oil & Gas
In the news: MYCELX Technologies, Seplat & Eland
We saw a flurry of publication activity yesterday. First off, Imogen Whiteside launched coverage of MYCELX Technologies*† (LON:MYXR) with her piece MYCELX Technologies — A Differentiated Oil Services Company, 29 September 2015. This 48-page report provides a fantastically detailed introduction to the company. MYCELX offers a technologically differentiated water purification solution that has been adopted by a range of blue chip clients across the oil and gas industry in both the upstream and downstream space. The company further differentiates itself within the oil services sector by providing baseline revenue generation from its ‘razor blade’ model of recurring MYCELX filter and service sales, along with its promising new contract opportunity pipeline.
We are initiating with a BUY rating and a target price of 150p weighted towards our base case DCF. This, despite representing the conservative end of our value range, remains 255% above the current price of 43p.
Elsewhere, we had a look at a specific Sub-Saharan oil & gas space. This came in the form of Stuart Amor’s Onshore Nigeria — A Focus on Seplat and Eland, September 2015. Nigeria has Africa’s largest oil and gas proven reserves (some 67Bboe) and Stuart believes that the new APC government, led by President Buhari, is addressing the severe corruption and mismanagement issues that have hindered the development of its oil sector for decades. Low oil prices could make reforms easier to sell here, particularly as the results of past bad policy and practices are laid bare.
The piece saw coverage initiations on Seplat (LON:SEPL) and Eland (LON:ELA), both with BUY recommendations. We estimate that Seplat’s fair value is 145p, 92% above its 75.8p equity market price on 24 September 2015. Eland’s fair value is 116p according to our NAV model, 150% above its 46.5p market price.
Stuart considers that the market is overestimating the problems that both these companies will face in the coming years. While Nigerian regulatory change is inevitable, it is unlikely that indigenous companies will be greatly affected. The continued divestiture of onshore/shallow water Nigerian licences by international oil companies, a new marginal field licence round and commercial domestic gas pricing should present great scope for creating value over the next few years. For the individual company pieces, click here for Seplat and here for Eland.