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City brokers positive on SDX Energy’s latest asset deal

SP Angel and Peel Hunt reacted positively to SDX's non-core asset sale.

SDX Energy Inc - City brokers positive on SDX Energy’s latest asset deal

City brokers have responded positively to SDX Energy Plc’s (LON:SDX) deal to sell a non-core asset for £3mln.

SDX earlier today announced it had sold a 50% working interest in the North West Gemsa licence to Gulf Energy, a private Egyptian company. Some US$1.4mln of the proceeds are being immediately used to discharge the company’s remaining liabilities on the licence.

Stockbroker Peel Hunt highlighted, in a note, that the sale of the mature oil asset was “another positive” for gas weighted SDX.

READ: SDX Energy sells non-core asset for US$3mln

Peel Hunt also noted that SDX had previously flagged a potential exit at NW Gemsa which has higher operating costs per barrel than the rest of the AIM-firm’s portfolio.

Moreover, Peel Hunt said the US$1.6mln of left-over proceeds are better than the broker’s expectations – given that NW Gemsa was carried with zero value in the broker’s model.

Repeating a ‘buy’ recommendation, which comes with a 35p price target, Peel Hunt said “overall this is a small but useful disposal for SDX, which removes a lower-margin asset at a higher-than-expected sale price.”

Elsewhere, SP Angel analyst Sam Wahab also described it as a positive outcome.

“NW Gemsa’s production profile has been tailing off for some time and would require material capital to reverse the fortunes of the field in our view,” he added.

“On a financial level, SDX will recognise a US$1.6m net cash consideration whilst also avoiding the upcoming associated budgeted capex of approximately US$2mln for the year.”

In Tuesday’s announcement, SDX pointed out that the deal is part of an ongoing focus and commitment to capital discipline and careful portfolio management.

“We are pleased to complete the sale of our interest in the North West Gemsa licence,” Mark Reid, SDX chief executive said in a statement.

“Whilst we have presented our interest in the licence as non-core for some time, owing to its reducing production and marginal netbacks, it is a welcome outcome to be exiting the licence with a useful cash consideration and also avoiding the upcoming associated budgeted capex of approximately US$2mln for the year.

“This deal demonstrates our continued focus on portfolio and capital management, and we look forward to recycling the cash into projects that will further enhance and grow our business in the future.”

Quick facts: SDX Energy Inc

Price: 16 GBX

Market: AIM
Market Cap: £33.59 m

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