ADX ENERGY LTD, Small Company, Big Plans

Breakaway Research - 05-Dec-2018
Key Points
o   Contingent resource of 163 MMboe across the asset base.
o   Two well appraisal program in Romania.
o   Secured farm-in partner for Nilde oil re-development offshore Italy, which should help secure tenure.
o   Appraisal drilling offshore Tunisia, farm-out underway.
ADX’s assets are at various stages of maturity
o   Appraisal onshore Romania has attracted funds from a UK E&P Reabold Resource and will initiate drilling in 2019. Valuation outcomes are meaningful to ADX, scale-able and offer the promise of rapid cash returns.
o   Committed drilling offshore Tunisia at Dougga is appraisal of a discovered resource, and if successful could trigger a large gas project. This is a complex project and farm-out ahead of drilling is pivotal.
o   Development: The Nilde project offshore Italy is a known field and offers the greatest absolute upside but tenure is not certain. If the license is ratified by Italian authorities, it would be a major catalyst for ADX.
·        Our valuation is based on planned drilling activity in Romania & Tunisia. There is substantial upside if Italy is ratified, to ~32 cps.
·        The equity marker is pricing ADX’s resources too cheaply. Maybe the nature of the asset base and challenges of the past 4 years have under-whelmed investors. Farm-out success to bring capital and industry endorsement of ADX’s work, and drilling activity should underpin value and provide market catalysts in 2019.

We rate ADX Energy Ltd as a BUY.

Breakaway Comments
ADX is a small company and the success YTD in financing strategies needs to be seen in context with the company’s modest balance sheet and market capitalisation. 2019 drilling activity and possible Tunisia farm-out provide catalysts. Our valuation ranges from 9c which attributes Tunisian & Romanian drilling in 2019. There is substantial additional upside if tenure in Italy can be secured.
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