Tethys Oil
Tethys Oil - Cash balance comes in handy (ABG Sundal Collier)
2020-03-25 07:47
Massive estimate revisions on oil price
Robust balance sheet, but EO dividend at risk
Could open a window for opportunistic M&A
Massive estimate revisions on lowered oil price assumptionsWe have lowered our Brent oil price estimates to an average USD 31 (62)/bbl in ’20e, USD 42.5 (65)/bbl ’21e and USD 60 (65)/bbl ’22e. Consequently, we lower our revenue estimates by 40% for ’20e and 32% for ’21e, and a negative EBIT is likely for ’20e and ’21e.
Balance sheet is robust, but EO dividend at risk
In our view, the balance sheet is robust, as Tethys entered 2020 with a USD 76m net cash position. Given the low oil price environment, we estimate a negative cash flow of USD 49m for ’20e-’21e. We estimate an oil price recovery and positive cash flows in ’22e. On prospects of near-term negative cash flows we find it likely that Tethys will suspend the SEK 6/sh extraordinary dividend at the AGM. Given the current solid net cash position, Tethys appears in a relatively better position vs. many smaller oil companies. There is a potential that Tethys will try to utilise the oil market downturn to pursue inorganic growth opportunities, in line with its earlier communications at quarterly presentations.
USD 35/bbl oil price appears discounted
On our estimates, an oil price of USD 35/bbl appears discounted for Tethys Oil. If oil prices recover to USD 60/bbl in the long term, we estimate an NAV of SEK 79sh.
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