High Arctic Quick Update - after Q4 and Re-org update
Quick update after Q4 2023 and reorganization update
*Disclosure: I own shares in HWO.to. I am not a professional. Please do your own due diligence.
Price: $1.20 CAD
MC: 59 million CAD
EV: 10 million CAD
1 year performance: -5%
HWO reported Monday before the markets opened and held a call. Results were in line of my expectations. That really isn’t what matters for HWO. They provided an update on the reorganization sending the stock up about 15% Monday and it settled down 3% yesterday.
Quarter Recap
Revenue of 18.1 million from 12.1 last year.
EBITDA of 3 million vs -3.2 million last year.
A couple days ago TotalEnergies and the PNG government released a statement that the FID of the Papau-LNG project is now delayed until 2025.
Rig 103 will be idled after June 2024, though it is still under contract until mid 2025.
Reorganization Update - The Big News
From the news release:
The Corporation provided an update today on the intention to issue shareholders a tax efficient return of capital to a maximum of $38.2 million and plan to reorganize the Corporation at a special meeting of the Shareholders. The recommendation to reorganize is expected to include the following elements:
a spinoff of the international business to shareholders as a Canadian publicly listed company,
maintaining the Corporation as a Canadian publicly listed company focused on growing the Canadian business,
distribution of a return of capital to shareholders of between $33.0 million and $38.2 million before July 26, 2024, and
right-sizing the general and administrative infrastructure to align with the new corporate structure.
The Corporation is working with DLA Piper (Canada) LLP as legal advisor and Lightyear Capital Inc. as financial advisor on the revised reorganization plan. The completion of which will be subject to Board, stock exchange, applicable regulatory and shareholder approval at a special meeting of the Shareholders to be held before the end of June 2024.
This is huge. This means we should get an information circular soon with more details on the different businesses.
Valuation
I have refreshed my numbers after Q4. My numbers were not at all precise from the start. The upside was always there, getting the liquidity was the question. Below are my (very rough) estimates.
Closing Thoughts
The news is a game changer to me. The fact that both will be listed is the largest concern from shareholders. The news of the FID delay in PNG and rig 103 being idled isn’t welcome. I still believe that there is value in PNG long term and I would hope that the economics of the LNG project eventually win out.
Even if this takes over a year, I think it deserves a position here. HWO should not be subject to swings in the markets. That also means that if the market rips, then it will likely get left behind.
Thanks for reading.
Dean
* long HWO.to
Not too bad, actually the second best possible outcome imo. The best would still be a rights offering + spinoff like the original plan but the spinoff co stays public. This way you would get the upside from limited participation in the offering while still have the liquidity of a pub co. All in all not a terrible outcome but this all could've been down more than 12 months ago. This has been my largest position at cost and it's done nothing for a whole year... Not impressed but will hold on since the thesis is finally playing out
Glad to see they decided to scrap the private international business plan. That was always sketchy. But management’s whole process through this process still leaves a bit of mistrust.