Carbon Energy Ltd (ASX:CNX) has received a Speculative Buy from APP Securities, with a target price of A$0.09.
The company last traded at $0.013. The following is an extract from the report.
Refinanced $10m convertible note and established a sound foundation for future growth
On 25 October 2016 Carbon Energy Limited (CNX) announced it had refinanced its $10m convertible note and established a sound foundation for future growth with the following highlights:
- CNX’s cornerstone investor, Kam Lung Investment Development Co Ltd (“Kam Lung” to purchase existing $10 million convertible note from current holder Pacific Road with a mix of upfront and deferred cash consideration;
- Current convertible note will be extended for a further five years on substantially the same terms;
- Funding will be used for refinancing, establishing solid foundation for future growth;
- Proposed minimum $5 million rights issue to place CNX in a stronger financial position;
- 70% of the rights issue ($3.5m) underwritten by Kam Lung;
- Seeking to secure further underwriting opportunities from other sources;
- To be priced at 1.2c per share, being a 25% discount to the 90 trading day VWAP;
- Attached to every two shares subscribed for will be one listed option, with a strike price of 2.4c and a three year life;
- Rights issue proceeds will be used to pay for refinancing costs of the $10m convertible note and provide general working capital to pursue business development opportunities and ongoing commitment to rehabilitating the Bloodwood Creek trial site;
- Approval will be required from shareholders at the AGM for entering into the convertible note with Kam Lung;
- CNX’s 2016 Annual General Meeting will now be held in mid-December; and
- Pacific Road appointed to monetise coal assets of CNX.
CNX’s MD, Kerry Parker said: “Extending the Company’s debt facility by a further five years and resolving the Company’s short-term financial capacity by securing underwriting support for our $5 million rights issue is a significant milestone and will allow management to focus on progressing the China Joint Venture with JinHong Investment Development Co. Ltd and to pursue additional joint venture and other business opportunities in particular in Asia and Europe.”
Earnings Changes
The rights issue is 25% dilutionary but it is a condition precedent to resolving CNX’s short term funding issue and in doing so dramatically de-risks CNX’s business.
We are retaining our 12 month price target of A$0.09 and the recommendation of SPECULATIVE BUY. The price target is underpinned by our DDM valuation.