Camber Energy, Inc. (NYSE-Amer: CEI) stock in May has been, in a word, boring. But that's not necessarily a bad thing, especially for investors wanting to seize upon valuation disconnects. At roughly $1.15 a share on Monday, CEI stock presents such a case. Frankly, CEI stock is less boring than it is consolidating. And savvy traders know that periods of consolidation can act like a winding rubber band on a toy plane. The bands get tighter and, simultaneously, more powerful upon release. That could be the case for Camber Energy stock. After all, all updates point to Camber becoming a much larger company sooner than later.
Most recently, CEI announced an amendment to its Amended and Restated Agreement and Plan of Merger with Viking Energy, dated February 15, 2021. It's an essential step toward closing the deal. As important, it makes the planned merger with VKIN a near-term proposition by bringing the parties closer to finalizing their intended merger agreement. More specifically, the deals amendment cancels specific warrant overhangs, which investors know can create dilution, uncertainty, and even chaos among warrant holders if share prices fall.
So, getting rid of uncertainty, in and of itself, creates value. And with this update paving the way for CEI to finalize owning 100% of Viking Energy (OTC: VKIN), shareholders in VKIN and CEI win from a combined entity becoming stronger than its distinct parts. Undoubtedly, CEI investors accruing 100% interest in VKIN, its revenues, and planned expansions is a value-creating event worth seizing. After all, much of the value VKIN brings does not appear appropriately factored into CEI's current share price.
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A Bigger Company With Ample Rev-Gen Firepower
And there's plenty. Foremost, Camber shareholders will accrue full legal and accounting control of Viking, enabling CEI to report underlying subsidiary revenues in their entirety. Beyond that, CEI and its investors benefit directly and entirely from Viking's business activities, including their interests in Custom Energy & Power Solutions Business; 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. VKIN shareholders get a win too. They benefit from a more actively traded company, a stronger balance sheet, a cleaner capital structure, and better access to capital to fuel planned growth.
Closing the deal does something else. From the value added, CEI can shift its growth pace from hyper to warp. And noting its plans to file its preliminary registration statement on Form S-4 with the SEC to complete the transaction, that can happen faster than many may expect. Camber's 10-K filed in March supports that presumption, which provided plenty of supporting evidence that CEI is primed for a breakout. It showed comparative revenues higher, expenses lower, and only 20 million outstanding shares. There was more good news. It showed Camber is better positioned than ever to maximize its bottom line growth and increase shareholder value after reducing derivative liability by 92% to $7.59 million, shrinking total liabilities by 56% to $51.82 million compared to 2021, and decreasing net loss by 89%.
They did more, completing the groundwork to announce entering into agreements canceling and terminating, effective as of the agreement date, one hundred percent of the warrants held by Discover Growth Fund, LLC and Antilles Family Office, LLC. The Termination Agreements also include a provision granting CEI the right to redeem the remaining shares of Series C Preferred Stock held by Antilles, subject to the conditions set out therein.
Accomplishments Let Assets Fuel Assets
Those accomplishments matter, explicitly paving the way for CEI to capitalize on its 2023 opportunities. In focus is the value inherent to CEI soon owning 100% of Viking Energy (OTC: VKIN), a fast-growing company providing custom energy & power solutions to commercial and industrial clients in North America. Notably, Camber is already a majority owner in VKIN, so VKIN's success is already on the books. However, making it a wholly-owned asset does more than add to revenues; it can facilitate additional growth from Camber's ability to leverage significant IP, benefit directly and wholly from VKIN's mission to monetize other assets and interests, including those related to expanding its stake in the United States oil and natural gas markets.
Like other assets in the CEI portfolio, VKIN facilitates CEI to capitalize on specific market opportunities at the right times. Those expedite other accretive deals, including maximizing an Intellectual Property License Agreement with ESG Clean Energy, LLC. That agreement taps into the value inherent to its patent rights and stationary electric power generation know-how. It includes methods to capture 100% of carbon dioxide and utilize heat to produce saleable commodities (e.g., distilled water, DEF, NH3, NH4).
The better news is that these additional assets allow CEI to extend its business reach beyond the U.S. Border, with Camber enabled to exploit the value from VKIN holding an exclusive license in Canada to a patented carbon-capture system and interest inherent to intellectual property rights to a fully developed and patented Waste Treatment system using Ozone Technology. More simply, CEI assets, and those being added, fuel a larger mission to capitalize on and maximize developing opportunities through stable positive cash flows generated from conventional energy and resource opportunities. Current interests accelerate CEI's development; the added value will expedite that impressive pace.
Another planned acquisition can also be best described as transformative.
A Case Made For A 2023 Breakout
In Q4/2022, Camber announced entering into an agreement to acquire certain privately-owned companies generating $55 million in annual gross revenues. Commentary included with that update indicates steps are being taken to close that deal, including measures to protect shareholder value. Once the deal closes, it gives CEI working interests in 169 producing oil wells (producing 2000 barrels of oil per day), 174 proved non-producing wells, and 12 proved underdeveloped well locations. But even before closing that deal, analysts covering Camber Energy model for significant near-term growth.
Lead analyst at Goldman Small Cap Research models for CEI shares to reach $2.75 this year. That target is supported by his factoring in the value inherent to its planned acquisition and merger with VKIN, which he expects will happen in Q3. According to the report, the combined revenue-generating firepower supports a steepening of CEI's stock price trajectory. Though Camber is already a diversified energy equipment and services company, Goldman believes the merger, once closed, would create new and lucrative opportunities. Specifically, he expects the combination will enable Camber to capitalize on expanded target market potential by adding new revenue streams from custom energy and power systems and services, clean energy technology, and oil and gas interests.
He noted the deal is taking more time than expected to close. However, with CEI already a majority owner in VKIN and both companies understanding the values added, the risk of not finalizing the deal is significantly mitigated, leaving a larger CEI better positioned than ever to capitalize on and maximize the revenue potential inherent to a fortified pipeline business. He provides supporting evidence by using inputs from CEI and VKIN.
Goldman's full-year proforma revenue forecasts for the combined company to score $31 million in 2023 revenues, surging to $42.4 million in 2024. Estimates do not include expected revenue contributions from any deal or acquisition prospect not yet in the pipeline. That's excellent news for those considering CEI ahead of the planned addition of $55 million in new revenues, noting that Goldman's modeling for share prices to reach $2.75 over the next 6-9 months result from just a finalized merger with VKIN and applying a 4X 2024E revenue. That multiple is based upon a review of peers in the ESG, energy, and specialty industrial equipment sectors. Still, while the model is decidedly bullish, it does not include the expected contributions from its other planned acquisitions.
Diesel Market Opportunities Are Also In-Play
Interests there can be appreciable. That includes its Membership Interest Purchase Agreement to acquire a 100% interest in companies bringing a processing plant designed to produce renewable diesel into commercial operations. Once operational, the plant's estimated production capacity is roughly 43,000,000 gallons annually. It's a timely deal. Renewable diesel fuel, sometimes called green diesel, is a biofuel chemically the same as petroleum diesel fuel and is produced through various thermochemical processes such as hydrotreating, gasification, and pyrolysis. Renewable diesel is made from renewable feedstocks instead of crude oil and is approximately 50%-55% less carbon-intensive than traditional petroleum diesel.
Here's more to appreciate on that value added. Global renewable energy consumption is increasing annually, a trend likely to continue as government mandates and voluntary shifts to less carbon-intensive energy sources by businesses and individuals accelerate that initiative. Keep in mind that the deal is still in the works. Camber's obligation to complete the transaction is conditional on several items in the Membership Interest Purchase Agreement. There is no guarantee that the conditions will be satisfied.
With that said, meeting those conditions and closing the deal could add to what's already expected to be a transformative growth period for CEI in 2023. And keep in mind that potential is in addition to the value expected from its other revenue-generating acquisition. Thus, investing wisely ahead of the planned acquisition, especially with further news supporting nearing the close of that deal, adds to the long-term opportunities.
A Valuation Disconnect Worth Immediate Consideration
But know this. Camber Energy isn't exclusively a long-term play. The near-term potentials are also impressive. In fact, summing CEI's parts, current prices expose a valuation disconnect between assets, share price, and potential that may be too wide to ignore. At $1.15 yesterday, totaling just the intrinsic value within its portfolio, pre-acquisition, can justify higher share prices. Still, while that sum supports the bullish thesis, not recognizing the disconnect ahead of the deal close may be a costly miscalculation.
Remember, Camber Energy has completed too much work to let the value inherent to VKIN and its other planned acquisitions slip away. And with shareholders of all the companies involved benefiting from the deals CEI is making, it's unlikely any of it will. Analyst models, while bullish, do discount valuations ahead of the agreement being finalized. However, even with that discount, they model for share prices to score levels over 100% higher than current. In other words, they make a case for tremendous upside with mitigated downside risk.
Of course, analysts don't always get it right. But in this case, estimates seem conservative compared to what's on the 2023 agenda. Keep in mind that CEI is already the majority owner of VKIN. So, while amendments may be presented, the bottom line is that this deal will likely get done, noting that both sides understand the value inherent to a combined asset stable fueling near and long-term growth. In other words, investors on both sides know that their investments can swell faster as a part of a greater whole. And more often than not, that provides the incentive to sign the papers.
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