Thread by @AccionEAFI

((PART 2))

#KIST $KIST.LN #KISTOS Thread 🧵

👇🏽👇🏽👇🏽

We begin to intuit that a huge deal like this (remember that the upfront+contingencies €220M+163M supposes x5 the #KIST mkt cap and almost x10 its net cash or NAV), even though there is some dilution, the leverage will be high, with its effect on our equity potential

And given the quality of the asset, it would be understandable to pay some premium for it.
But let's see what this asset can produce in 2021 and beyond. Because basically, the figures they are giving to us for 2019 and 2020 are TOTALLY MISLEADING.

In 2019, the asset began to produce steb by step in February, it was stopped for maintenance of the P15 facility for almost two months apr-may, and the last well did not start pumping until September.

So, hopefully, we're talking about half a year at most producing normally in 2019.

And what happened in 2020? Well, we all know what happened.

"LEAVE THE GAS IN THE GROUND"

So we have another year of EXTREMELY low production and gas prices that were down 70% of where they are today.

So...2020 is also not very useful for our calculations.

So... how much can our asset produce?

Well, we have some periods that production was close to being "normal":

So we have an avg production in those Q’s of 2.8M Sm3/d, for 320 days (I take 1yr less 1.5 months per maintenance work in Q10-A and P15), so about 896M Sm3 annual gross, 538M net for TONO (almost DOUBLE the figures they are giving us for 2019 and 2020).

With the conversion factor from Sm3 to kWh, and the information we have on the recovery of prices since then:

barchart.com/futures/quotes…

Doing some quick math, we obtain that Q10-A can produce about €100M rev, and keeping margins stable (they should increase with gas prices), it would produce about €70M EBITDA, and depending on leverage, taxes, capex etc. something like 40-50M of pure FCF for us as shareholders.

Not bad considering that #KIST mkt cap was £67M or €79M when halted, and its NAV was €40M.

When I did this math, I couldn't believe it, but later I understood that the company itself, reported this repayment period for the investment:

A 9-month payback for a €90M project is not bad, we are talking about a free cash generation of €10M/month when prices were more or less at current levels (mid-2018). These estimates are even higher than my own calculations.

This would mean that the periods that I am taking as "normal" production were not 100% complete either. In any case, I prefer to keep my estimates more cautious. Although it seems a fact that this asset is designed to generate €120M/year.

Financing: €220M upfront, #KIST has €40M in cash… and this is the FRN that KIST assumes. 8.5% maturity 2022:

markets.businessinsider.com/bonds/tulip_oi…

This makes a total of €130M… we are short of €90M. This is the amount that €KIST needs to raise between new equity (a part of whitch will be given to TONO) and the new bond that it is being negotiated in Norway.

It's surely no coincidence that it is in Norway given the knowledge they have of this type of assets. Apart from the new bond, will also TONO FRN be refinanced? It yields 8.5%, expires in 2022, and it was issued when only burning cash? It is certainly a possibility...

So we have a €220M EV (I don't take the earn outs bc they will come if production & 2P increases, which I am not valuing either) for something that produces something like 70 to 120M EBITDA.

And what is interesting here, is that all the additional multiple that the market decides to assign to that flows from that valuation, will be for our equity in #KIST.

Even though according to my calculations, with normalized production, we have 2p reserves for 6-7 years.

So I consider highly probable that the market multiple will not be too high. But... giving the size of the deal and the leverage profile... I think that, even with a low multiple, we can assume that there is indeed potential por a HUGE run.

The higher the leverage (or less equity issued), lower the financial cost of debt and higher the issue price of the new shares, the higher FCF per share for us, the higher the upside. If over the next months we have news on life extension or production, the greater the upside.

A good question is why Tulip sells this, with this timing. It's simple. In 2020 they had 90M 2022 mat. debt yielding 8.5% and their only asset turned off. Default was likely. Now they take their IRR, reduce risk, and keep upside in a listed asset. It makes sense for both parties.

So we have already almost a complete photo. We still lack of some information, and each one must assume their own variables.

But it seems clear to me that, with the information we have right now, we can already say:

*AA DID IT AGAIN*

((THE END))