Analyst Ashley Kelty, in a note, highlighted San Leon’s low-risk and value-creating model.
“In our opinion, San Leon offers investors exposure to Nigerian production and development assets, with a clear path to near-term cashflow and significant longer-term upside,” Kelty said.
“Through investing indirectly in companies in Nigeria rather than directly in the assets, San Leon reduces the risk profile, whilst retaining greater upside.
“Near-term cashflow is secured through loan note repayments, with dividend income anticipated beyond that.”
Kelty pointed to the ongoing development of the OML 18 and Oza oil fields as catalysts for near-term growth, whilst noting the benefits of San Leon’s investment strategy that utilises lending rather than equity.
“With a relatively small amount of capital deployed, attractive returns are realized whilst having more influence and control than would be the case as a minority joint venture partner,”
“The current share price has been impacted by the negative sentiment towards the oil sector, and we believe investors fail to appreciate the longer-term potential of San Leon.
“With a portfolio built up at low cost, and attractive near-term returns (as evidenced by the special dividend paid earlier this year), we see potential for a re-rating.”
Interim results in September showed a company with a strong financial position and outlook.
In 2020 to date, the company with investments in Nigerian oil assets received US$41.5mln in payments from operators, via loan note arrangements. Some US$88.7mln of future loan note payments remain.
With US$35.6mln in cash at the end of the half-year - US$22.6mln by September 18, 2020, after US$6.8mln was put in escrow – the company said it is positioned to invest and grow further.