Africa Oil Corp.: Driving Substantial Future Returns (AOIFF)

Africa Oil Corp. (OTCPK:AOIFF) has been a standout performer in right this moment’s financial system with its share value up virtually 70% YTD. The corporate is one we have supported for years now, with its low valuation. It is lastly gotten its monetary place to a degree the place it will probably begin to aggressively drive shareholder returns making it a useful funding.

Africa Oil Corp. Share Repurchases

Among the many largest information to return out of Africa Oil Corp. is the corporate’s share repurchases.

Beginning in late September, the corporate launched an aggressive share repurchase program. Underneath the newest 1 week program, the corporate repurchased virtually 2 million shares, and since September 27, the corporate has repurchased virtually 14 million shares. For reference, the corporate’s whole buyback program permits it to repurchase ~40 million shares.

The corporate’s market capitalization is at the moment slightly below $1.2 billion USD with roughly 500 million shares excellent. The corporate’s share repurchase program permits it to repurchase 8%, which as we see, it will probably comfortably afford. The corporate has to this point managed to cut back its excellent shares by 3% in simply over a month.

These share repurchases will probably be a big a part of the corporate’s future shareholder returns.

Africa Oil Corp. Asset Overview

Africa Oil Corp. is an extremely effectively positioned firm financially with a singular portfolio of property.

Africa Oil Corp. is a full cycle E&P firm with a formidable portfolio of property, particularly off of the coast of Nigeria. The corporate has 82.1 million barrels of 2P reserves with manufacturing at 27.4 thousand barrels / day. That means a greater than 8-year reserve life nowadays though the corporate has executed a very good job of changing these property.

The corporate at the moment has $191 million in money, not counting the roughly $30 million in share repurchases which have occurred. The web money place even counting Prime Oil and Gasoline debt is powerful, with the corporate internet money constructive general. Nonetheless, the corporate has substantial room to depart that debt and preserve repurchasing.

Extra so, the corporate continues to get dividends from Prime Oil and Gasoline. The corporate continues to have substantial different property getting into growth and exploration standing that may allow future returns. It is also price noting that Africa Oil and Gasoline has continued to have a good hedging technique to guard revenues from the following 12 months.

Africa Oil Corp. Monetary Place

The corporate has an extremely robust monetary place that we count on to proceed enhancing.

The corporate’s 50% portion from its money flowing asset has been substantial. The corporate’s annualized EBITDAX is greater than half a billion and the corporate’s CFFO is roughly $500 million annualized, which is very large for a simply over $1 billion firm. The corporate can enhance that unfold by paying down debt extra to avoid wasting on curiosity.

Given robust oil costs, we would prefer to see the corporate give attention to share repurchases beneath a stage of roughly $3-4 / share, ideally changing into the only purchaser at that stage. We might prefer to additionally see the corporate give attention to extra long-term progress alternatives by means of Kenya and so on., which might present a dependable manufacturing supply for many years.

Africa Oil Corp. Development Potential

The corporate’s stock additionally offers the corporate with substantial future progress potential.

Africa Oil Company has substantial progress doubtlessly, closely by means of its stakes in Africa Power, Influence, and Eco-Atlantic. The corporate just lately introduced the Venus-1 discovery, indicating the potential of a brand new producing property. We count on a number of of those property to begin producing quickly, offering new manufacturing. That might begin with money circulation within the subsequent few years.

The corporate additionally nonetheless has its 25% stake within the Kenya blocks which is already producing low quantity manufacturing with costly trucking. We count on that this may ramp up accelerating shareholder returns and the ensuing progress potential whereas offering a multi-decade time interval of flowing oil.

Africa Oil Corp. Shareholder Returns

Our perspective is the corporate continues to have the potential to generate substantial shareholder returns.

The corporate at the moment has a 2% dividend costing it simply over $20 million per 12 months, one which it will probably comfortably afford. We count on that to proceed for the long-term. The corporate has been aggressively repurchasing shares, which has proven up in its share value, and we count on that to proceed rising over the approaching months. The corporate has ~2.5 months left.

We might prefer to see the corporate as a result of a significant purchaser of shares beneath $3-4 per share given its present value and valuation, the place there is a substantial alternative to drive returns. The corporate additionally has affordable progress potential so we would prefer to see it proceed focusing there to drive long-term returns the place they’re opportunistically accessible.

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Thesis Danger

The biggest danger to the corporate’s thesis is oil costs. The corporate is extremely worthwhile with Brent crude costs at slightly below $96 per barrel. Nonetheless, at $80 / barrel or much less the corporate’s present valuation turns into extra overvalued which modifications the thesis on the validity of the funding. We see that as much less seemingly within the present surroundings with underinvestment.

Conclusion

Africa Oil Corp.’s share value has continued to outperform with its aggressive portfolio of share repurchases. The corporate’s spectacular share value efficiency might be anticipated to proceed. On high of this, the corporate has a dividend yield of two% one which it will probably comfortably afford for the long term that we count on to proceed rising.

The corporate has a formidable portfolio of property one which we count on to have the ability to proceed increasing. Its core property have substantial manufacturing and an virtually 1 decade time interval on reserves, assuming no reserve substitute. Going ahead, we count on this mix to assist substantial shareholder returns together with enabling continued progress.