Camber Energy, Inc. (NYSE-Amer: CEI) stock has been relatively quiet in May. However, don't view it as a negative. The better way to evaluate CEI stock is to understand the sum of its parts, which shows a valuation disconnect worthy of immediate consideration. In fact, despite trading higher by 5% since Tuesday, CEI stock still presents a compelling opportunity. It's an assumption based on simple math, which in CEI's case, shows that the sum of its parts, and those expected to join, are worth considerably more than what recent prices indicate. And recent updates strengthen that bullish thesis.
In May, CEI announced an amendment to its Amended and Restated Agreement and Plan of Merger with Viking Energy, initially dated February 15, 2021. This amendment is significant because it provides a giant step forward to CEI finalizing a value-creating merger with Viking Energy (OTC: VKIN). Better still, it makes the deal a near-term proposition by making terms more accretive to shareholders, specifically by eliminating certain warrant overhangs that generally lead to dilution, uncertainty, and potential chaos among warrant holders if share prices decline.
Of course, like most instances in market trading, removing uncertainty in and of itself is a value driver. But this update, in particular, is valuable to CEI and its investors because it paves the way to ultimately acquiring 100% ownership of Viking Energy. Those following Camber and Viking already know that CEI is the majority owner of VKIN. However, they also likely know that while the line item contributions from VKIN have been impressive thus far, accruing VKIN revenues in their entirety, in addition to the value inherent to planned acquisitions, creates a path of least resistance higher for Camber's growth prospects and implied valuations.
Video Link: https://www.youtube.com/embed/YT_HmBM-Ncw
Recognizing The Valuation Disconnect
Even a cursory look at CEI's asset portfolio shows that a significant portion of VKIN's value is not appropriately reflected in CEI's current share price. Fair enough, since the deal has yet to be closed. But when it does, a multitude of benefits await Camber shareholders, providing reasons to consider investing ahead of the announcement it's a done deal.
Foremost, CEI will get bigger faster, gaining complete legal and accounting control over Viking, whereby CEI can record the entirety of subsidiary revenues. That's not all. CEI and its investors get additional value from Viking's business activities, which accrues value from a range of interests, including its Custom Energy & Power Solutions Business, an Exclusive License to a Patented Clean Energy & Carbon-Capture system, intellectual property rights to a fully developed, patented, ready-for-market proprietary Medical & Bio-Hazard Waste Treatment system using Ozone Technology, and patent-pending, ready-for-market proprietary Open Conductor Detection systems. In other words, this deal is a significant win for CEI shareholders. It is also for VKIN shareholders, who benefit from increased trading activity, a stronger balance sheet, a more streamlined capital structure, and improved access to capital to support planned growth. For both, it provides even more.
Completing the merger can facilitate CEI shifting its growth trajectory from hyper to warp speed. And after announcing an intent to file a preliminary registration statement on Form S-4 with the SEC, that acceleration can happen sooner than later. Evidence found in Camber's March 2023 10-K filing supports that presumption. Even ahead of adding VKIN assets and an increased percentage of revenues earned, it showed higher comparative revenues, lower expenses, and a modest 20 million outstanding shares. In addition, the report highlighted Camber's strengthening of its capital structure to maximize bottom-line growth, evidenced by the substantial reduction of derivative liabilities by 92% to $7.59 million, the 56% decrease in total liabilities to $51.82 million compared to 2021, and the impressive 89% decline in net loss.
Strengthening Fundamentals Ahead Of Transformative Deals
Further steps have been taken to shore up the capital fundamentals, with CEI finalizing agreements that cancel and terminate, effective as of the agreement date, all warrants held by Discover Growth Fund, LLC and Antilles Family Office, LLC. These Termination Agreements also grant CEI the right to redeem the remaining shares of Series C Preferred Stock held by Antilles, subject to the specified conditions outlined therein. In other words, CEI shares are getting into more shareholder-friendly hands,
That's critical to CEI maximizing the potential inherent to a busy 2023 agenda and allowing the value intrinsic to complete ownership of Viking Energy to accrue more quickly. Remember, VKIN is no small company. Despite its microcap share price, they are a rapidly growing company offering tailored energy and power solutions to commercial and industrial clients in North America. As noted, Camber already holds a majority stake in VKIN, so its success is already reflected in the company's books. However, owning all of it matters because, as a wholly-owned asset, VKIN adds more than just revenues; it opens pathways to additional revenue-generating opportunities from Camber leveraging its substantial intellectual property and more fully benefiting from VKIN's initiatives to monetize other assets and interests, including expanding its presence in the U.S. oil and natural gas markets.
Additionally, VKIN assets enable CEI to capitalize on specific market opportunities where they currently don't. That's inclusive of CEI maximizing the Intellectual Property License Agreement with ESG Clean Energy, LLC. That agreement taps into the inherent value of patent rights and expertise in stationary electric power generation, including methods to capture 100% of carbon dioxide and utilize heat to generate marketable commodities like distilled water, DEF, NH3, and NH4.
The better news is that these additions extend Camber's business reach beyond U.S. borders. Camber can take full advantage of VKIN's exclusive license in Canada for a patented carbon-capture system and the intellectual property rights to a fully developed and patented Waste Treatment system using Ozone Technology. Moreover, CEI's existing and forthcoming assets support a broader mission and focus on capitalizing on and maximizing emerging opportunities, with stable positive cash flows derived from traditional energy and resource ventures providing capital assurances. But there's more to include when appraising the Camber value proposition.
Another planned acquisition can be described as nothing short of transformative.
Analyst Models For Triple-Digit-Percentage Growth To PPS
In Q4/2022, Camber announced its intent to acquire a privately-owned company currently generating $55 million in annual gross revenue. It's a big deal, especially for a company whose market cap is only about $25 million. But management commentary emphasized that steps are being taken to ensure the successful closure of the deal while safeguarding shareholder value. Upon completion, this acquisition will provide CEI working interests in 169 productive oil wells (yielding 2000 barrels of oil per day), 174 proven non-producing wells, and 12 underdeveloped well locations. Even before the deal concludes, analysts who cover Camber Energy anticipate the asset to contribute significantly to near-term growth.
The lead analyst at Goldman Small Cap Research is bullish. He models for CEI shares to reach $2.75 this year. This forecast considers the value derived from the planned acquisition and merger with VKIN, which he expects will be finalized in the third quarter. According to the analyst's report, the combined revenue-generating potential should significantly and positively impact CEI's stock price. He notes that while Camber already operates as a diversified energy equipment and services company, the merger will unlock new and lucrative opportunities. Specifically, he believes the combination will enable Camber to capitalize on an expanded target market, encompassing custom energy and power systems and services, clean energy technology, and oil and gas interests.
Although the deal's closure is taking longer than anticipated, he suggests that CEI's majority ownership of VKIN and the shared understanding of the added value mitigate the risk of it falling through. Consequently, with a mutually beneficial impact, he sees little reason for this deal to not be consummated. The numbers modeled are impressive.
Goldman's proforma revenue projections for the combined company suggest $31 million in 2023, which would surge to $42.4 million in 2024. These estimates do not include the expected revenue contributions from any other deals or acquisitions not yet in the pipeline. It's worth noting that Goldman's projected share price of $2.75 within the next 6-9 months is solely based on the finalized merger with VKIN and a 4X multiple of the 2024 estimated revenue. The multiple is derived from a review of comparable companies in the ESG, energy, and specialty industrial equipment sectors. Notably, while the model is bullish, it does not factor in the anticipated contributions from other planned acquisitions.
Seizing Diesel Market Opportunities
That could include one in play in the diesel market. CEI announced entering a Membership Interest Purchase Agreement to acquire a 100% interest in companies that will bring a renewable diesel processing plant into commercial operation, which, once operational, is expected to have a production capacity of approximately 43,000,000 gallons per year. Like others, this deal is timely considering the increasing global consumption of renewable energy and the accelerating shift towards less carbon-intensive energy sources being adopted voluntarily by governments, businesses, and individuals. It's important to note that the deal is still in negotiations, and the completion of the transaction is contingent upon several conditions outlined in the Membership Interest Purchase Agreement.
Still, should these conditions be met and the deal finalized, it would contribute to what is already expected to be a transformative growth period for CEI in 2023. Furthermore, the value inherent in this acquisition would add to that derived from other revenue-generating assets. Thus, measured investment consideration ahead of these deals closing may be wise. Similar to other ground floor opportunities, being early can have benefits.
A Sum Of Its Parts Consideration
With that said, while focusing on a singular acquisition can be a significant value driver, appraising CEI more comprehensively may be the best way to appraise intrinsic and inherent value. Indeed, Camber Energy shouldn't be viewed solely as a long-term investment; short-term potentials are equally impressive. In fact, combining the various parts of CEI shows that current share prices are victim to a significant gap between the valuation of its assets, share price, and untapped potential.
It's fair to suggest that stand-alone assets within its portfolio, before any acquisitions, justify higher share prices. But that's an unfair representation. Camber Energy is about to get bigger, completing most of the groundwork to ensure the value in its crosshairs won't slip away. They see what others see; their company is on the precipice of transformative, even exponential growth. Analysts indicate prices higher than 100% from the current are within reach by Q4.
Of course, analysts' predictions are not always accurate. However, they are measured and calculated. And in this instance, considering the accretive assets expected to contribute to CEI's 2023 growth, the input data looks to have generated a reasonable return. In fact, if all deals close according to plan, the bullish estimates, even those on the high end, could prove conservative.
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