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Bargain Shares: Backing an energy transition winner

An African-focused energy group has pulled off a successful fundraise to progress its flagship Moroccan gas project which should create substantial value for shareholders.
Bargain Shares: Backing an energy transition winner
  • $25.5mn placing and subscription completed
  • one-for-47 open offer to raise $4mn
  • Directors invest $0.6mn in subscription offer

Chariot (CHAR:19.55p), an African-focused energy group, has announced a $29.5mn (£23.6mn) fundraising, at 18p a share, to advance its low-cost flagship Anchois Gas development, offshore of Morocco.

Pitched at a tiny 2 per cent discount to the market price, the placing and subscription element of the equity raise completed in double quick time, a sign of strong investor support. Existing shareholders have until 8 June to submit their open offer applications. I would advise doing so for multiple reasons.

Firstly, at the start of the year, Chariot announced a major gas discovery at its Anchois-2 well. Having encountered multiple high-quality gas reservoirs, net pay estimates – a key parameter in reservoir evaluation – have been raised from 100m to 150m. This has a positive impact on the size of the resource, and on the project economics, too.

A post-drill reserves report is in the process of being updated, but on a base case development with a 70mn standard cubic feet (scf) per day plateau production rate from the 2C contingent resource (pre-drill), Anchois has a net present value of $900mn (applying a 10 per cent discount rate) and is expected to generate an eye-catching 45 per cent internal rate of return for its project owners.

Secondly, Chariot’s board is looking to advance the Front-End Engineering Design (FEED) project to reach the Final Investment Decision (FID) as quickly as possible, whilst progressing the development of the group’s wider portfolio. Around $15mn of the fundraising proceeds will help accelerate this process while a further $5mn has been earmarked to progress Chariot’s renewable power pipeline, strategic partnering and new venture opportunities.

The partnering process is already underway as Chariot looks for long term, strategically aligned partners in both upstream and downstream capacities. The next commercial steps will be negotiating and completing gas sales agreements, and securing project finance. At the end of April, investment bank Societe Generale was appointed to lead the project financing.

Chariot already has a Memorandum of Understanding (MoU) with a leading international energy group for future gas sales agreements for 40mn scf per day for up to 20 years on a take or pay principle, thus anchoring the development whilst retaining the opportunity to sell surplus production into the gas hungry European market which is in urgent need of alternative sources of gas supply.

 

Simon Thompson's 2017 Bargain shares portfolio performance
Company nameTIDMOpening offer price on 03.02.17 (p)Bid price on 19.05.22 (p) or exit price (see notes)DividendsTotal return (%)
Kape Technologies (formerly Crossrider)KAPE47.93383.55613.0
Chariot Oil & Gas (see note one)CHAR8.2919.50543.6
Avingtrans AVG20045011130.5
BATM Advanced Communications (see note seven)BVC19.2541.30130.3
H&T HAT289.7534843.935.3
Cenkos Securities (see note two)CNKS88.4251069.530.6
Manchester & London Investment Trust (see note three)MNL291.653773.028.4
Management Consulting Group (see note five)MMC6.18360-3.0
Bowleven (see note four)BLVN28.95.515-6.1
Tiso Blackstar Group (see note six)TBG5520.40.54-61.8
Average    144.1
FTSE All-Share Total Return  64858080 24.6
FTSE AIM All-Share Total Return 9771092 11.8

 

Notes:

1. Simon Thompson advised selling two-thirds of the Chariot Oil & Gas holding at 17.5p on 3 April 2017 ('Bargain shares on a tear', 3 April 2017). Simon subsequently advised participating in the one-for-eight open offer at 13p a share ('On the earnings beat', 5 Mar 2018) and buying back the shares sold at 4p ('Chariot's North African adventure', 17 April 2019). Simon then advised taking up the one-for-six open offer at 5.5p ('Exploiting margins of safety', 1 June 2021). Total return reflects these transactions.

2. Simon Thompson advised selling the Cenkos Securities holding at 106p on 3 April 2017 and the 106p price quoted in the above table is the exit price on the holding ('A profitable earnings beat', 3 Apr 2017). Please note that Simon has since included the shares in his 2020 Bargain Shares Portfolio and rates the shares a buy.

3. Manchester and London Investment Trust paid total dividends of 3p a share on 2 May 2017. Simon Thompson then advised selling half of the holding at 366.25p on 26 June 2017 ('Top slicing and running profits', 26 June 2017), and selling the remaining half at 377p ('Bargain shares second chance', 17 August 2017). The 377p price quoted in the table is the final exit price.

4. Simon Thompson advised banking profits on half your holdings in Bowleven at 33.75p (‘Hitting pay dirt', 9 Apr 2018). The company subsequently paid out a special dividend of 15p a share on 8 February 2019 and the balance of the holding was sold at 5.5p ('Taking stock and profits', 9 December 2019).

5. Simon Thompson advised to sell Management Consulting's shares at 6p in February 2018 (‘How the 2017 Bargain share portfolio fared’, 2 February 2018). The price quoted in the table is the 6p exit price.

6. Tiso Blackstar transferred its UK listing to the Johanesburg Stock Exchange. The shares were delisted on 23 November 2020 when shareholders received an exit cash payment of R415 per share on cancellation of their shares.

7. Simon Thompson advised banking profits on half your holdings in BATM shares at 49.9p ('Bargain Shares: Exploiting pricing anomalies and top-slicing', 3 December 2018) and subsequently bought back the shares at 43.5p ('BATM armed for a re-rating', 11 July 2019). 

Thirdly, the gas project offers green credentials in a growth market. Currently, Morocco imports around 90 per cent of all its primary energy supply and is heavily reliant on coal. Supplying growing power and industrial energy demand in Morocco will be Chariot's main market, a factor that is supportive of securing the funding for the initial capital expenditure of $300mn (£244mn) needed for the project.

The positive back drop explains why Chariot’s share price has kicked on 11 per cent to 19.55p since I highlighted the progress being made (‘Hitting pay dirt: Chariot on Fire’, 31 March 2022) during which time the FTSE Aim All-Share index has lost 10 per cent of its value. The holding has also delivered a 543 per cent return in my 2017 Bargain Shares Portfolio. Cenkos Securities conservative looking 51p target highlights the value still on offer. Buy.

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