Camber Energy, Inc. (NYSE-Amer: CEI) is approaching a pivotal time in its history. In fact, they are on the precipice of becoming a much larger company with accretive acquisitions in their crosshairs. Each will add significant value. And to make sure that value earned is value kept, CEI is doing other things to strengthen its fundamentals.
Earlier this month, Camber Energy announced amending its Amended and Restated Agreement and Plan of Merger with Viking Energy, initially dated February 15, 2021. It's an important change to preserve shareholder value. But beyond that, it does something else. It can facilitate CEI finalizing its planned merger with Viking Energy (OTC: VKIN), whereby Camber's current majority ownership stake will become a wholly-owned interest. Moreover, cleaning its capital structure could make the deals' closing a near-term proposition by limiting specific warrant overhangs that generally lead to dilution, uncertainty, and valuation model adjustments. In other words, shareholders on both sides of the transaction can be comforted knowing that potential dilution won't erode the quality of their investments in CEI or VKIN. That matters.
And it will likely expedite the closing of this deal, which is already past original consummation expectations. That's excellent news for both companies, considering that while the line item contributions from VKIN have been impressive, CEI accruing 100% of them can be instrumental in accelerating its plans to expand its business reach domestically and internationally.
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A Valuation Disconnect Exposed
Frankly, even ahead of the merger, CEI shares present a compelling value proposition. Already, CEI's asset portfolio shows that a significant portion of VKIN's value is not appropriately reflected in CEI's current share price. Remember, they are the majority owner, and the value inherent to that stake is undoubtedly worth more than its current share price. Thus, the trajectory for CEI stock could be bullish when the deal is finalized, expected by Q3. Accordingly, investing ahead of the announcement it's a done deal may be a wise consideration.
Why? Because CEI will immediately become a larger and higher revenue-generating company. Moreover, CEI strengthens intrinsic and inherent value by gaining complete legal and accounting control over Viking, which will permit CEI to 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 Accrue To Shareholders
Additional initiatives have been completed to shore up the capital fundamentals, including 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. More simply said, CEI shares are getting into more shareholder-friendly hands,
That's a big deal and critical to CEI maximizing the potential inherent to a busy 2023 agenda since that agreement allows the value intrinsic to 100% 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. That's good news for Camber since they already own a majority stake in VKIN, with that company's success reflected in the company's books. However, while possessing a majority adds value, owning all of 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.
Furthermore, VKIN assets enable CEI to capitalize on specific market opportunities where they currently don't. That includes 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 even 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.
GSCR Analyst Models Significant PPS Upside
Camber also announced the conditional Purchase Agreement for the proposed acquisition of a renewable diesel facility in Reno, Nevada. The plant, once operational, is expected to generate $300 million per year in revenue. Market conditions will dictate how quickly that deal can close. Still, should these conditions be amenable and the deal finalized, it would contribute to what is already expected to be a significant 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 warranted. Remember that, like other ground floor opportunities, being early to an investment opportunity in undervalued companies can have benefits.
The lead analyst at Goldman Small Cap Research thinks so. 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.
Appraising Camber Energy On A Sum Of its Parts
Thus, factoring in intrinsics with potential, the Camber Energy investment proposition is compelling. Remember, they are not a one-shot revenue-generating goal company. They combine several developing value drivers to generate potentially significant new revenue streams. When that happens, and following the analyst models presented, it could make the path of least resistance for CEI appreciably higher.
And keep in mind that Camber Energy did not complete months of groundwork to let the value inherent to its planned acquisitions slip away. They recognize that closing these deals can and will likely be transformative to near and long-term growth, also leading analysts to model for share prices to surge by over 100% from the current levels. True, 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 used to generate the bullish model appears reasonable.
In fact, if CEI successfully closes its planned acquisitions and generates the revenues forecast, the bullish estimates and price targets could prove conservative. Based on guidance, that's more than likely; it's probable.
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