5 Reasons I Bought More Shares in Tlou Energy This Week

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5 Reasons I Bought More Shares in Tlou Energy This Week

The content of this podcast (or content associated with it) is not intended as investment advice and people featured may hold positions in the companies they talk about. Please do you own research.

I often say on the podcast, “You can buy a good company at a bad price and lose money and a bad company at a good price and make money”.

In order words there’s very few factors more important, when it comes to investing, than the share price.

Of course the best combination is to buy a good company at a good price, which is why I bought more shares in Tlou Energy this week, as I believe the recent fall in their share price presents an opportunity.

I see it as an opportunity because the original reasons I invested in this company haven’t changed. In fact developments within this company, since I bought their shares origingally, means the case for investing has become stronger.


Tlou Energy is an AIM and ASX listed company focused on delivering power in Botswana and the broader southern African region through the development of coal bed methane (‘CBM’) projects.

I’ve written a previous blog on Tlou Energy, which you can read here but here’s a summary as to why I believe they are now in the buy zone:

5 Reasons I Bought More Shares in Tlou Energy This Week

1. Potential

On the 10th January, Tlou received a request for proposal from Botswanan Government to provide up to 100MW of CBM power from its Lesedi project. In a podcast interview, that followed this announcement, CEO Tony Gilby pointed out that a 100mw power station would generate between $100m – $150m of revenue per year.

So let’s take the lower end of the range, $100m and assume a conservative 10% margin. This would produce $10m of profit per year. Put this on a price / earnings ratio of 10 and this means a market capitalisation of $100m or £80m.

Remember this is just one of 3 opportunites Tlou have. The other two are:

– To supply and expand the existing 90MW Orapa Power Station to 135MW and replace expensive diesel generation with clean CBM.

– To supply a proposed 300MW gas-fired power project to be developed by IK Holdings and GE.

Their market cap, is currently £14m.

 

2. Botswana

Botswana is a politically stable country with one of the fastest-growing economies in the world. Due to this growth it has a chronic energy shortage and are relying on expensive imports or diesel power stations, which is both environmentally unfriendly and expensive.

The Botswana government are bending over backwards to implement a new sustainable, clean alternative and its seems coal bed methane is their preferred option and Tlou are the market leader in this field.

 

3. Market Leader

Tlou Energy is the most advanced CBM project in Botswana.

They are the only company to have independently certified CBM gas reserves and Environmental Impact Statement approval. Tony Gilby mentioned that they’re probably 3-5 years ahead of any other would be competitor. It’s also worth pointing out that, to date, they don’t really have any competitors. In effect it’s a one horse race.

 

4. Management

Tony Gilby the CEO has extensive experience in coal bed methane projects. He was instrumental in establishing successful Coal Seam Methane at Arrow Energy in Australia.

Arrow Energy listed on the ASX on 17 August 2000 at $0.20 valuing the company at A$25.6m. At the time of it’s takeover, 9 years later, Arrow was valued at $5 billion with a share price of $5.87.

After his time at Arrow Energy, Tony went on to become Managing Director of Sunshine Gas.

In August 2006 Sunshine Gas had a market cap of $98m. In 2008 BG Group acquired Sunshine Gas as part of an AU$5.2 billion takeover of Queensland Gas Company Limited in 2008. “The price was very good for our shareholders,” comments Gilby, “so we weren’t complaining.”

This valued Sunshine Gas at around $1.1billion.

 

5. The Share Price

(click to enlarge)

At 5.875p their share price is currently at a 5 months low, last seen on 19th August 2016. This gives them a market capitalisation of £14m and yet, since this date Tlou have announced 4 major pieces of news:

1. Approval by the Botswana’s Department of Environmental Affairs for their Environmental Impact Statement for its Lesedi CBM Project.

2. An initial Independent Reserve Certification from SRK Consulting for the Lesedi CBM Project located in prospecting licence PL002/2004 in Botswana.

3. An extended a Co-operation Agreement with General Electric International Inc. and IK Holdings Pty Ltd for the delivery of a proposed gas to power solution for Botswana.

4. A request for proposal from Botswanan Government to provide up to 100MW of CBM power from its Lesedi project

So the project is a lot further advanced and therefore significantly de-risked compared to where it was, in August, when the share price was last at 5.875p.

I talk about Tlou Energy on the weekend podcast. Scroll into 5 mins on the player below:

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The content of this podcast (or content associated with it) is not intended as investment advice and people featured may hold positions in the companies they talk about. Please do you own research.