Serinus Energy

A new high-growth junior takes flight

Combination of Kulczyk Oil Ventures and Winstar Resources

Serinus Energy is a Canadian-listed International E&P company with producing assets in Ukraine and Tunisia. Previously known as Kulczyk Oil Ventures, Serinus closed the acquisition of Winstar Resources in June 2013. 2P reserves for the combined company are estimated at 21 mmboe, while corporate production has recently exceeded 5,150 boe/d.

Top quartile growth expected in next twelve months

The Serinus management team has delivered impressive growth from its Ukrainian assets over the past three years, increasing production five-fold and 2P reserves three-fold in that time period. We are forecasting corporate production to increase by 37% over the next four quarters, which places Serinus’ growth potential in the top quartile of Canadian and UK-listed International E&Ps under Macquarie coverage.

Discounted valuation reflects perceived country risk

Serinus trades at a 35% discount to our Core NAV estimate of C$5.49/sh (PV10AT, strip pricing), and at just 2.3x 2014E EV/DACF. We believe the stock’s discounted valuation is a function of perceived country risk in Ukraine and Tunisia, an under-the-radar management team, and a lack of liquidity in Canada. We see plenty of room for the valuation to expand in line with the peer group if management can deliver on growth expectations.

Initiating coverage with C$6.50/sh target price

At a time when many of its peers have experienced a plateau (or even declines) in growth, we believe Serinus is a refreshing addition to the Canadian-listed International E&P landscape. With a 15-well drilling program planned for the next 18 months, Serinus is in the early stages of a capital program that would rival many larger companies. We believe delivery on top quartile production growth expectations, beginning with Tunisian drilling in 1Q14, warrants a valuation at least in line with 2P reserves. We also look for a solid 2013 drilling program to be reflected in the year-end reserve report (likely in March 2014), serving as a further reminder of this stock’s discounted valuation. We are initiating coverage with a C$6.50/sh target price and Outperform rating.