VSA Morning Flow Test, 01/07/21
Egdon Resources (LON:EDR)
Egdon Resources (LON:EDR) announced a conditional equity fundraising of £1.44m at a price of 1.25p/sh, a 17% discount to the prior close of 1.5p/sh. This will provide the company with funds to finalise ramp up of Wressle where the company’s contractor, Schlumberger has been delayed by two to four weeks due to logistics issues around transporting equipment cross border in the current post-Brexit, COVID-19 environment. The funds will also be deployed at Resolution and Endeavour where EDR is partnered with Shell as well as general working capital and in support of the company’s renewable initiatives focused on geothermal energy.
EDR will issue 115.3m shares subject to a general meeting (20 July) enabling the second of two tranches to be issued. The two tranches will be of 89.9m and 25.4m shares respectively. In addition, holders of the £1.05m convertible note issued in January 2021 have expressed their intention to convert all outstanding loan notes at a price of 1.55p/sh. Following the exercise of the conversion and the issue of both tranches the company will have 516.8m shares outstanding.
Our valuation methodology had assumed that the convertible loan notes would be fully converted. In our model we had also assumed additional equity would be required and this was broadly in line with our assumption which means our target price is adjusted from 22.5p/sh. to 22.3p/sh.
We reiterate our Buy recommendation and adjust our target price to 22.3p/sh.
Oliver O'Donnell, CFA, Head of Research & Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
#Indicates VSA house stock.
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