AJL - AJ Lucas Group

[Col Lector]

Pointr...would love some more myself but portfolio looking a bit lopsided as it is.
Can be sure that there is plenty of negotiating going on re AJL gas supply though. Concerned that they do not rush to sell/commit these assets too cheaply, but management have proved to be adept at deal making...if maybe a little (too) understated so far. The CSG rationalisation has but started....
While the case for "Lucas Energy" spinoff seems easily justified on a valuation basis, it should not be overlooked that AJL's NSW assets, in particular are also v. strategically located....& growing....
*The SGL (AJL 15% earning25%) Hunter Project tenements have will be crossed by the announced QGC pipeline introducing new low capex fastrack opportunities. *AJL/MPO Gloucester Project controls the entire basin and is close enough to Newcastle to control options & supply.....eg,
1.Supply and build! own pipeline direct to consumers or to connect QGC Hunter Power Station/nsw hub.
2. Build/supply own gas-fired capacity in JV (with??) onsite Gloucester/ lower Hunter
3. If fully proved & aggregated, SGL Hunter & AJL Gloucester reserves have major (&strategic) supply potential....and other possibilities....including maybe even NSW LNG could come into the frame.....:22_yikes:

 

[Aussiejeff]

Significant holder announcement today by AJL - increased holding of SGL shares through on-market purchases from 61,802,102 (15.35%) to 66,556,202 (16.54%).

Both companies up today (so far).



AJ
(I hold)

 

[Col Lector]

Quite (a) day...+17% with relentless buying in the afternoon. IMO a belated recognition of:
The strategic nature of AJL's CSG HunterValley reserves ie,Gloucester; & via the SGL.
Their v. strategic holding of SGL (approaching 27% if option conditions satisfied) .

Very interesting to see AJL quietly ann Friday that it has been in the market recently topping up with SGL.... Thats a big vote of confidence from the guys drilling SGL's holes.

A combined AJL/SGL would effectively control coalseam gas tenements from Wollongong to Gloucester - both the Sydney & Gloucester Basins.
This proximity to Sydney & Newcastle reduces capex on expensive pipework (eg, QGC plan)and opens a myriad of options.
From a SG major's point of view, gaining control of AJL would secure a v.key position on which to build.
Eg, For QGC it would mean securing the "NSW hub" at the other end of a very long pipeline...as well as pipeline builders, and a hell of a lot of drilling rigs & drilling expertise.
A longshot....especially since rapid rise recently, but I'm tipping it for the June Tipping Comp....to finish a nose ahead of SGL

 

[grace]

Picked some of these up today, thanks to the sad market. Thanks for the posts on this thread and site. I'm going to suggest that this was the stock recommended by The Daily Reckoning last week, as no other stock fits the description to my knowledge (see my post on the general csm thread).

Someone has to build these new gas pipelines "in the pipeline". AJL seems well placed to do this (given they are only one of two companies that build onshore gas pipelines). Hoping they pick up some large contracts.

Also like their coal seam gas exploration prospects. Here's hoping anyway.

 

[ormond]

grace
I think the true value of AJL will be reliesed with the diveesment of its csg
portfolio.Have seen a broker report with a 540 mill. valuation of its gloucester basin intrests alone. cheers ormond

 

[grace]

Can someone have a read of this....think it is in relation to AJL. What do you think? Also received some coverage last night too on AJL (copyright sorry).

Every One of Those Companies Needs This Month's Tip

Remember what we said about coal-seam gas requiring a lot of wells? Santos alone plans to drill a total of 1,350 coal-seam gas wells over the next 20 years, liberating 4,200 petajoules. That's the minimum required to run its Gladstone plant. It'll probably drill more.

That means extracting Queensland's entire gas reserve today will require somewhere in the order of 3,500 wells. It's a hefty job. Plus, reserves will grow. Energy companies don't just sit and twiddle their thumbs.

They prove up energy reserves.

Add in any development of the NSW market, and we could be talking tens of thousands of wells in total. Queensland is already drilling 400 wells a year.


Queensland's Coal-Seam Drilling Frenzy


But looking at the number of wells required doesn't even scratch the surface. Coal gas wells need maintenance. They need geophysical studies before drilling occurs. They need modelling, engineering design, regulatory approval and operating expertise.

The scheme will require its own pipeline system too. Santos and Queensland Gas will need 805 km of new gas pipelines for their contribution to Gladstone.

There's one firm providing all of these services, and more. This is a dynamic company that we believe has all the ingredients to be on the receiving end of the coal seam gas build up.

 

[TheAbyss]

This is the company dexfription for AJ Lucas out of a ABN Amro Morgan report on CSG companies. AJL are the largest in this country so they are the obvious benificiary of the CSG industry maturity

AJ Lucas
(AJL.AX)

■ largest Australian coal and CSG driller
■ cash flow from operating businesses
■ 70% interest in Gloucester Basin, NSW
■ attributable 2P reserves 119 PJ
■ drilling to increase reserves
■ 100km pipeline required to market
■ 15% interest & management of SGL

AJL's objective is to prove up additional 2P reserves in Gloucester Basin and SGL assets and spin off Lucas Energy (CSG Assets) as a separate vehicle by calendar year end and commercialise the assets. Its operating businesses have the usual broad range of operating risks.

 

[grace]

Good to see a new substancial holder Westpac/BT in there with 5.08%

Brendon Lau (in the Smart Investor mag) has a bit of a write up on AJL. Conservative target of $8.50 for the next year. So is that 12 months away, or sometime next year.

Anyway, fairly positive and says further upside if CSG assets floated off, and any reserve upgrade will increase target price.

Seems to think that it will be worth more as two entities - one of energy, one of drilling and pipeline services.

Tend to agree, as fairly hard to value at the moment.

John Deniz from Patersons says

On price-earnings multiple, it's the second most expensive stock in the sector that we cover, but if you strip out its CSG assets, it's actually the second cheapest"

Hopefully, they cover more than 3 stocks.

 

[michael_selway]

Good to see a new substancial holder Westpac/BT in there with 5.08%

Brendon Lau (in the Smart Investor mag) has a bit of a write up on AJL. Conservative target of $8.50 for the next year. So is that 12 months away, or sometime next year.

Anyway, fairly positive and says further upside if CSG assets floated off, and any reserve upgrade will increase target price.

Seems to think that it will be worth more as two entities - one of energy, one of drilling and pipeline services.

Tend to agree, as fairly hard to value at the moment.

John Deniz from Patersons says



Hopefully, they cover more than 3 stocks.

Sounds Good

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 11.8 31.8 38.0 42.5
DPS 2.5 7.0 8.0 11.0

thx

MS

 

[Dukey]

Ohhh Damn!!!
Have been checking out AJL grace since your recent mention of it somewhere on ASF. Dunno why they slipped thru my net before!
they have been VERY attractive this week - but a fast bounce and now we know why.
# There were two notices posted that I saw - One for BT 5.08% and another for WBC 5.08%.... so it would seem to me that they HOLD over 10% now in total. And they got a great price I reckon.

I love the sound of the CSG spinoff later in the year, and they are set for BIG earnings increases this year over last.... comsec says 170 odd %... could be more.

Now I have to decide whether to bail from the RPM/BOW/QGC hunch - which looks like reaping sweet FA.... and buy these for Long term...
thinking...:freak3:
thinking...

 

[jet328]

# There were two notices posted that I saw - One for BT 5.08% and another for WBC 5.08%.... so it would seem to me that they HOLD over 10% now in total.

Westpac is the major owner of BT. That's why the holdings are identical (it's just one holding, not two)

 

[Dukey]

Westpac is the major owner of BT. That's why the holdings are identical (it's just one holding, not two)

Yes - I stand corrected - both noticed are identical except for the holder name..... But why two notices for the one holding?? seems strange to me.

If the second notice is correction to the first, then they should state it clearly in the title...

doesn't matter... still good news

 

[Col Lector]

Good to see a new substancial holder Westpac/BT in there with 5.08%

Brendon Lau (in the Smart Investor mag) has a bit of a write up on AJL. Conservative target of $8.50 for the next year. So is that 12 months away, or sometime next year.

Anyway, fairly positive and says further upside if CSG assets floated off, and any reserve upgrade will increase target price.

Seems to think that it will be worth more as two entities - one of energy, one of drilling and pipeline services.

Giday Grace....was that a "consolidation" we just felt?? Increased broker & funds interest bodes well. I think these guys will have plenty of options to realise value of CSG assets whether they "spin-off" Lucas Energy as planned or take another route.
Has been largely overlooked by many CSG stock porers....mainly due a relatively low-profile, & a diversified business structure that complicates direct comparisons with pure-players. Also off many funds radars as currently outside the ASX300 (but for how long though?)
Mkt Cap $329mill @ $5.55.
FY08: 31.8 cps; PE 17.5
FY09: 38cps; PE 14.6.
Paying dividends...!
Is classed as "Industrial Sector" company but more realistically an Energy & Infrastructure Services business ....2xgrowth sectors.....with a substantial bolt-on CSG asset(s) as a strategic bonus. Its this enterprise diversity that brings AJL some deep competitive advantages not there with many other energy players.

An investigatation of AJL potential value done by simple separating into the 2 entities via assignment of all existing debt/assets/earnings to
A. LSERVICES
Assigned full $329 mill mkt cap; all debt ~ $200.
Currently all earnings flow from services. Reasonably conservative forecast FY09 PE of 14.1 (Comsec) on eps of 38cps.
IMO sp justified under this scenario & debt could be supported given the strong order book & sector growth profile.
B. LENERGY
Mkt cap..? What price when approached as an unencumbered pure-gas play...?
Becomes an evolving game of totalling the petajoules & applying the going $/reserves benchmark. With maybe some upside to reflect the strategic potential of the assets.
Gloucester Basin
QLD JV
Sydney Basin (SGL holding & deal)
Arawn Energy BC

 

[Col Lector]

This a link to very recent (July08)report to analysts re NSW assets....Good valuation fodder....


http://www.asx.com.au/asxpdf/20080708/pdf/31b23rxlg3pvzv.pdf

 

[grace]

Dukey, did you pick up those AJL before the trading halt?

Acquisition of Mitchell Drilling with Nathan coming on board, and more drill rigs. Super. 58 (AJL) + 31 (Mitchell Drilling) means a monopoly in the Industry!

Acquisition is 5.6x 09 earnings. I'm happy with that.

Not happy about no detail of offer of placement to current shareholders.

The purchase price for Mitchell Drilling of $150 million represents a 5.6x FY09E EBITDA multiple. The acquisition is expected to be EPS accretive for AJ Lucas in FY09.

AJ Lucas also wishes to update the market on its financial year 2008 performance and outlook for financial year 2009. While the audit for the year ended June 2008 has not been completed, AJ Lucas expects to report EBITDA of A$37.6m. This will be impacted by non-recurring legal expenses of $5.2m. Normalised EBITDA for the year ended 30 June 2008 is expected to be A$42.8m. In relation to the 2009 financial year, AJ Lucas expects continued organic growth in addition to the impact of the Mitchell acquisition, with forecast financial year 2009 EBITDA of $80.0m[/QUOTE]http://aspect.comsec.com.au/asxdata/20080723/pdf/00862387.pdf

Investor Presentation
http://aspect.comsec.com.au/asxdata/20080723/pdf/00862389.pdf

 

[pointr]

Ah yes Grace, offers to existing shareholders. I sent a letter to the chairman on this topic with a view to the spin-off of energy assets, still haven't got a reply. But still I suppose the commercial cost effective reality is to get funding from a few large players rather than deal via prospectus etc with lots of little ones. The only thing I'm particularly unhappy with about AJL is why I didn't buy more, my average holding price is $0.98, but they seemed dear enough back then. But I do think CSG is a STRONG fundamental investment trend and am very happy to hold a few companies with exposure to it

 

[Col Lector]

Mmmmm...Today's bookbuild price outcome will be very interesting. A floor of $ 5; but recent increasing instituational interest, & rising broker valuations (above $8 generally) bode well for a bullish book price.
The combined Mitchell& Lucas drilling stand to hugely benefit from both increased CSG and coal activity (check out the client list of combined entity) as well as water+ pipeline projects.

As an aside, was reading up on AJL's Arawn partner's in Canadian venture.... Cornelius & Bustin. These guys are non-conventional gas experts (Dr's in fact)with a knowledge of prospects that can only work to AJL's advantage. Grizzly & Red Deer prospects around Peace River Measures (SW of Fort St John) noted for high CSG prospectivity.
The shale-gas phenomena in North America is based on new horizontal drilling & fracturing techniques. The AJL/C&C tieup may open doors to more than the CSG acreage...must be plenty of demand for expert drill operators I'd imagine & opportunity to negotiate attractie terms...

 

[Dukey]

Dukey, did you pick up those AJL before the trading halt?

Acquisition of Mitchell Drilling with Nathan coming on board, and more drill rigs. Super. 58 (AJL) + 31 (Mitchell Drilling) means a monopoly in the Industry!

Acquisition is 5.6x 09 earnings. I'm happy with that.

Not happy about no detail of offer of placement to current shareholders.

The purchase price for Mitchell Drilling of $150 million represents a 5.6x FY09E EBITDA multiple. The acquisition is expected to be EPS accretive for AJ Lucas in FY09.

http://aspect.comsec.com.au/asxdata/20080723/pdf/00862387.pdf[/url]

Investor Presentation
http://aspect.comsec.com.au/asxdata/20080723/pdf/00862389.pdf

No not yet grace

Have been busy getting back into full time work and scraping $ together for AJL.... a day too late.
Damn Damn Damn....

 

[grace]

Well that was all pretty quick....plenty of interest so they thought they would raise a bit more while they were at it.
Placement at $5.30.

The placement was conducted via a bookbuild process and completed at a price of $5.30 per share, which represents an 8.5% discount to AJ Lucas’ last closing price on Tuesday, 22 July 2008 and a $0.30 premium to the underwritten floor price. Due to very strong demand from both existing AJ Lucas shareholders and new investors, the placement was increased from an initial 5 million shares.

 

[Col Lector]

A good result Grace.....strong support @ ~$6 despite $5 floor & $5.30 placement..... I believe base price was maybe set a bit low given the predicted earnings growth presented recently ?? Would have liked to pick up a few at that price.
AJL set to reap huge benefits from new CSG customers (AOE, ORG, BLU...etc) & enhanced drilling service dominance. The high & ongoing demand will give them negotiation power going forward....