11.01.2019 kl 15:27 5009

Arctic Sec : NAV kr 415/kurs mål 290,-

Noreco to acquire Shell’s Danish E&P operations at attractive terms

Noreco just announced that it will acquire Shell’s Danish operations for a net consideration of :
USD 1.2bn.
We however believe these assets are worth ~USD 2bn given our $75/bbl long-term view, and as such estimate that Noreco has acquired these assets at a 40% discount. Moreover, the producing assets ensure that Noreco can utilize its DK tax losses which further adds USD 340m to its NAV.
Post transaction we estimate Noreco’s NAV to be 415 NOK/sh on a fully diluted basis, up from 230 NOK/sh pre transaction.
The portfolio consists of 2P reserves amounting to 209 mmboe (implying that 2P reserves are acquired at USD 5.7/boe), 2C resources which we currently estimate to 100 mmboe and ~57 kboe/d in production. The transaction is subject to government approval and is expected to close during H1 2019.

Assets secured at 40% discount to NAV:
Noreco will pay a net cash consideration of USD 1.2bn, while we estimate the assets to be worth ~USD 2bn given our $75/bbl long-term view.
We furthermore estimate a post-deal NAV of NOK 12.5bn or NOK 415/sh, compared to a pre-deal NAV of NOK 1.6bn or 230 NOK/sh.

Full de-risking of DK tax loss carry forwards:
Following the acquisition of the Shell assets Noreco will be able to utilize its Danish tax loss carry forwards. The current after-tax NPV (a present value effect is applied to the tax losses to incorporate the fact that Noreco cannot utilize all of it immediately) of the Danish tax loss carry forwards amounts to NOK 2.7bn or NOK 90/sh post dilution.
Noreco additionally holds value equivalent to NOK 9/sh in risked UK tax loss carry forwards.

Attractive valuation:
At a NOK 185 share price (the new equity was raised at this price) we estimate an average P/E of 3.8x through 2019-2022.
We further estimate a dividend capacity of NOK ~15/sh per year to 2030, after Tyra re-development comes on stream (2022), implying an 8% yield at NOK 185/sh. Peers (EQNR, AKERBP, LUPE and FPM) trade at a 3-6% dividend yield and a 0.8 – 1.5x NAV multiple.
We believe however Noreco will trade at a discount to these peers due to a lack of history and a portfolio in run-off mode post Tyra re-development.
Our best estimate is a P/NAV pricing of ~0.7x equivalent to ~290 NOK/share!

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