Camber Energy, Inc. (NYSE-Amer: CEI) is moving closer to completing its 100% acquisition of Viking Energy (OTC: VKIN). And once done, it will provide CEI with significantly more revenue-generating firepower, resulting from CEI getting complete access to all of VKIN revenues, IP, overseas deals, and other value drivers that combine to contribute an attractive premium to Camber's current revenues. Ahead of the finalization, seizing on a valuation disconnect in Camber shares may be a wise consideration, noting that the value proposition keeps getting stronger.
Last week, Camber announced Viking's majority-owned subsidiary, Viking Protection Systems, LLC, received a Notice of Allowance from the United States Patent & Trademark Office ("USPTO") for patent application No. 17/693,504 titled "Electric Transmission Line Ground Fault Prevention Systems Using Dual, High Sensitivity Monitoring Devices." This is excellent news, noting that a Notice of Allowance is typically issued only after the USPTO determines that a patent should be granted from an application. In other words, with the awarded patent likely published in the coming weeks, CEI will be ideally positioned to leverage its value, especially with complete ownership of VKIN expected to close as well.
Like its others, this patent can be a significant value driver that provides competitive insulation. This prospective patent relates to Viking Protection's proprietary transmission line ground fault prevention system, designed to detect a break in a transmission line or coupling failure and immediately de-energize the line, thus preventing an energized high voltage transmission line from contacting ground or a grounded structure. The technology is designed to be an integral component within a much-needed, worldwide grid hardening and stability initiative by electric utilities to improve the resiliency and reliability of existing infrastructure.
Notably, Viking Protection's software-based solution can be deployed within a utility's existing protective relay infrastructure, allowing the utility to protect its grid with greater confidence and reliability. The value inherent to the technology is timely.
Supporting The Power Grids
According to the United States Department of Energy (DOE)' Office of Electricity, the country's electric infrastructure is aging and being pushed to do more than it was initially designed to do. And that can be a problem, noting that the country's economy, national security, and even the health and safety of its citizens depend on the reliable delivery of electricity. In other words, while there is a discussion about upgrading the Nations grid systems, the need to modernize the grid to make it "smarter" and more resilient through the use of cutting-edge technologies, equipment, and controls that communicate and work together to deliver electricity more reliably and efficiently is not just needed, it needs to happen sooner than later.
Indeed, it will happen. While the United States has a tendency to drag its feet when it comes to funding projects, they eventually do, and in this case, with money already earmarked to beefing up the country's power grids, CEI, through its subsidiary ownership, could tap into an opportunity with its technology to help reduce the frequency and duration of power outages, reduce storm impacts, and restore service faster when outages occur. As Viking Protection puts it, its technology is at the forefront of this essential modernization initiative. Of course, capitalizing fully on that opportunity, CEI must finalize its 100% ownership stake in VKIN. The excellent news is that they are making considerable progress.
Last month, CEI announced filing an amendment to its previously filed registration statement on Form S-4 with the U.S. Securities and Exchange Commission regarding the merger of itself and Viking Energy (OTC: VKIN). While the Registration Statement has yet to become effective, and the information contained therein is subject to change, it still provides important information about the proposed transaction to make VKIN a wholly owned Camber asset, with Camber Energy remaining the sole publicly-traded asset. Camber added that the completion of the transaction is subject to shareholder approval, the Registration Statement being declared effective by the SEC, and other customary closing conditions. Notably, it adds to a previously executed Amended and Restated Agreement and Plan of Merger, initially dated February 15, 2021.
Other groundwork is being completed to ensure the value earned is value kept. CEI checked that box by 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, which could expedite the deal's closing.
Revenues Dropping Faster Toward The Bottom Line
That matters. And so does understanding how the pieces of both companies fit together to expose a valuation disconnect between CEI share price and its intrinsic and inherent value. In fact, before the merger, CEI should be more fairly valued, considering the wholly-owned assets contributing to its growth. That's not to say VKIN assets aren't critical to accelerating CEI's growth. They are. In fact, combining what CEI has with the more formal and complete recognition of VKIN revenues and assets, the most likely path for CEI, post-transaction, is higher. And most looking at the combination will say deservedly so. What supports that bullish thesis?
Foremost is that CEI will immediately become a larger and higher revenue-generating company. Additionally, 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. There's more to appreciate. CEI and its investors accrue additional value from Viking's business activities, inherent to 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. Simply stated, closing this deal will be a significant win for CEI shareholders. But not only for them.
VKIN shareholders also benefit from increased trading activity, a stronger balance sheet, a more streamlined capital structure, and improved access to capital to support planned growth. More simply, a win-win proposition. But here's the better news from an investor's perspective on either side. Completing the merger can facilitate the surviving entity, CEI, shifting its growth pace from hyper to warp.
Keep in mind that the speed is already impressive, evidenced in Camber's March 2023 10-K filing that shows 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.
Accretive Value Supports Higher Share Prices
Remember, VKIN is no small company. Despite its sub-dollar share price, they are a fast-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.
Additionally, leveraging VKIN assets will 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 potential benefit 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.
Specifically, Camber can take 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.
Goldman Small Cap Research Analyst Is Bullish
Another deal in CEI's crosshairs is 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 market conditions be amenable to completing the proposed transaction, it would contribute mightily to what is 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. An analyst at Goldman Small Cap Research appears bullish on the 2023 prospects.
The lead analyst there models 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.
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.
Rally Hats Expected In 2H/2023
In other words, while GSCR is bullish on 2023, factoring in the potential from other planned deals could make his valuation model conservative. Combining the sum of Camber's parts, and the ones expected, is likely the more appropriate way to appraise CEI stock. Remember, even before the acquisitions, Camber is not a one-shot revenue-generating goal company; they are developing several value drivers to generate potentially significant new revenue streams.
If and when that happens, expect the same bullish analysts to revisit their models, plugging in higher revenues that generally lead to multiples supporting higher share prices. Moreover, keep an eye on progress toward closing the deal that can add a combined $300 million revenue stream to CEI's ledger. While it may not happen this quarter or next, stocks trade from a forward-looking perspective. With that in mind, an under-valued Camber Energy may be short-lived. In fact, recent upticks in price and volume suggest that change may be in progress.
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