CNE – Update, +25% ABS, +5% REL – Gaining Momentum Again

*Stock has been very weak due to a lack of positive news flow – over the week the stock is up +8% as we are seeing the UK-India virtual summit agreeing on a 2030 road map to strengthen ties

*Meanwhile reports are that India asks State banks to protect dollar assets on concerns that CNE might try to seize these

*CNE has previously said it is considering three options, including talks with the government, preparation for possible enforcement, and potential to monetize the award, either partially or in full, to a third party. But told Bloomberg yesterday that “As yet, no decision has been taken,”

*The upside for CNE if/when they get the settlement is huge – if we only factor in 50% of the USD 1.4bn ruling we see CNE trading at a 45% discount to NAV (pt 325p versus the current 176p) while if we factor in the full claim we see the stock at a 62% discount to NAV with a PT of 465p – the main question remains timing

CNE LN – Reiterate BUY +31% ABS, +15% REL – Appeal inline

Thursday • 11 March 2021 • 09:52

*We see it as a good entry point here for anyone not involved in the name

*We see this recent sell-off as more fast money trying to profit from any announcement which is causing volatility

*Investors were hoping for more of a ‘solution’ being released with the earnings on Tuesday while to us it was quite clear that the India government is unlikely to want to pay in the middle of Covid and therefore trying to postpone

*We are medium term holders as we expect that India will be forced to pay one way or the other although an appeal can drag this out

*The new rhetoric from the India government is implying that CNE acquired the national resources through corruption which could open up a completely new case although don’t see this as having any legs

*CNE reiterated in the results that the ruling can be enforced in over 160 jurisdictions around the world and they have already registered the award in multiple of those jurisdictions and begun the process of identifying assets, against which action could be taken, should that be required

*CNE also been exploring selling the claim to a third party or lend money against the claim

*A SOTP valuation using the full Tax arbitration award shows the stock trading at a 60% discount to NAV implying a price target of 450p – in case they settle with a third party for half the claim the pt we get to is 320p

CNE LN – BUY – Update – India challenged VOD LN tax arbitration case

Monday • 08 February 2021 • 14:21

*CNE case under consideration

*The details terms of the award are under examination by the Government

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Thoughts: We were expecting India to challenge both cases. A sell-off on this could therefore provide a nice opportunity to add. They have not yet confirmed what they are planning for the CNE case but the fact that CNE is targeting assets to seizes put the government under much more pressure than in the VOD case where there is no direct cash implication. We expect them to challenge the CNE ruling as well.

CNE LN – Reiterate BUY +28% ABS, +20% REL – Positive sentiment over the weekend, should double over time

Monday • 01 February 2021 • 08:31

*Interesting article in the Business standard saying India could give CNE some oil fields instead of paying the USD 1.4bn citing sources

*Article calls it a win-win to get an established exploration and production (E&P) firm back to India while their economy is struggle with Covid leaving limited options for payment

*Points out US oil firm ConocoPhillips managed to seize Venezuelen assets post its awarded arbitration

*Our thoughts are that while cash would be preferred, the sentiment of India looking at options to pay and having worries about assets being seized very positive for CNE

*A SOTP valuation using the full Tax arbitration award shows the stock trading at a 55% discount to NAV implying a price target of 410p

*While the stock spiked on the arbitration award before Christmas it has since gradually been selling off and is now -15% lower

*This pull back provides another add or initiate opportunity

CAIRN ENERGY – BUY – UPDATE +32% so far: BlackRock pushing India

Monday • 25 January 2021 • 08:54

– PTI reports BlackRock, MFS, Franklin Templeton and Fidelity ask India – as well as the governments of their country, the US and the UK – to honor arbitration award citing sources

Out thoughts: Not sure it will push the Indian’s into immediate payment but puts pressure on them to respond and get the process moving. We see Cairn as a buy or chance to add below 180.

Full repayment of its claim against India gives us a 350p PT

Half of its claim against India being repaid gives us a 250p PT

Currently +32% on trade…

CNE LN– UPDATE +50% to date – Hold for now but looking to add on weakness

Wednesday • 20 January 2021 • 16:09

*Seeing a few of the banks downgrade to Neutral over the last week after the stock has 25% rally since the Indian tax case announcemnet back on the 23rd December

*While we still see a +80% upside we believe that we believe this will take some time as we expect that India will appeal the process by arguing that tax matteres are not part of the international tax treaty

*We do not expect India to be succesful in its appael but more a political way to delay the inevitable as the timing of the payment politically comes in a very tricky time for the government in the middle of Covid

*Large financial flexibility of the group allows for large upside potential, the company is net cash positive even without taking the Indian tax ruling into consideration

*The stock goes ex its 32p special dividend on Monday – proceeds from the Senegal sale – a simultaneous share consolidation will take place to neutralize the effect on the share price

CNE LN – UPDATE +20.6% so far: Reiterate Buy – Special dividend inline

Thursday • 17 December 2020 • 17:53

*Received government approval for Senegal sale – to pay a 32p special dividend – goes ex 8 January, EGM on 8th January to vote on the distribution

*Timing and amount inline with what the company has previously indicated, next up on our catalyst call is the India ruling which could effectively double the market cap of the company

CNE LN – UPDATE – Upside remains huge – Ruling expected shortly

Thursday • 26 November 2020 • 10:47

*Market cap could effectively double on a positive ruling

*Decision likely already taken – now just paperwork

*Decision cannot be challenged – only process

*Speculation in press in India is that India could challenge the process saying that tax is not part of the bilateral investment treaty

*CNE does not think discussion about process has any merit and points out this speculation been going around for a long time

*Political decision as well – some speculation that by challenging the process India could push the costs away from Covid times

*A lot of people drawing parallels between Vodafone case and Cairn – a big difference is that Vodafone ruling does not come at a cost for India while CNE ruling would imply a cost – along with the cases also being very different

*Regarding the special dividend CNE still waiting for the final approval for the Senegal sale – expected by year end – we expect the dividend to be around 32p but will be paid through a share consolidation rather than a dividend payout

CNE LN – The New Star of Bollywood – Share Price Could Double!

Thursday • 15 October 2020 • 09:15

*Guidance for outcome of the USD 1.4bn arbitration case is still end of summer 2020

*Covid should not have delayed much as independent arbitrators are used to working remotely and based in 3 different countries

*Both parties have looked at losses suffered and not far apart in estimates

*Outcome of arbitration cannot be appealed although process can be

*Very few countries in the world do not respect the outcome at bilateral international courts – India said will adhere

*Case boils down to a reorganization the group did as part of an IPO in India in 2006 – they had to transfer some assets but none of them changed group ownership – 8 years later the government froze the remaining stake CNE held in the IPO worth USD 1bn

*A positive ruling in the arbitration could more than double the company’s current USD 1.1bn market cap

*Vodafone tax case in India very different, involved an actual transaction, but Vodafone remains invested in India and did not face any financial penalty

*CNE remains confident about its position in the case

Future of company leaves upside as well

*Large financial flexibility of the group allows for large upside potential

*Want to broaden the production base and also focused on ESG commitments – Now in a position where they can acquire more licences or even look at acquiring other players

*Shareholder return of Senegal sale completion expected by year end pending regulatory approval – worth approx. 32p but will likely be done as a share consolidation

*Also has addition upside potential in Senegal sale – can get an additional 13p per share in contingent payments by 2023

*Current OPEX cost per barrel is around USD 18

Valuation

Our SOTP valuation shows CNE trading at a:

13% discount to NAV without including India (pt 165p)

60% discount to NAV with a full repayment of its claim against India (pt 350p)

45% discount to NAV with a half of its claim against India being repaid (pt 250p)