Those that liked the Camber Energy, Inc. (NYSE-Amer: CEI) value proposition in 2022 will love it in 2023. In fact, investors are taking quite an interest, with the mindset that milestones reached are about to become catalysts. Those tend to be value drivers, often with great significance. And with several updates expected, it could lead to that transformation happening sooner than later. In other words, the bullish sentiment is warranted.
It’s timely, too. Camber’s 10-K filed last month provided the CEI bulls plenty of supporting firepower. It showed comparative revenues higher, expenses lower, and only 20 million outstanding shares. But there was more good news. It showed Camber also positioned itself to maximize its bottom line growth and increase shareholder value by 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%.
While impressive, those accomplishments are only a part of why CEI is well-positioned to attack 2023 opportunities. Investors may also be eyeing that the most potent value drivers are that CEI has at least two transactions in its crosshairs, which are more than accretive to creating sustainable shareholder value; they are expected to exponentially increase revenues.
Building A Formidable Revenue-Generating Arsenal
The most near-term value driver is Camber’s plan to acquire 100% ownership of Viking Energy (OTC: VKIN), a fast-growing company providing custom energy & power solutions to commercial and industrial clients in North America. Camber already owns the lion’s share of VKIN, so it’s already contributed to growth. However, making it a wholly-owned asset increases Camber’s interest in a solid revenue-generating company that leverages significant IP and, like CEI, is on a mission to accrue additional interests to expand its stake in United States oil and natural gas markets. Like other assets in the CEI portfolio, VKIN’s value is inherent to them being in the right sectors at the right time.
As important, they are better positioned in 2023 to exploit their potential in several developing markets. Viking shared details regarding IP rights to fully developed, patent-pending, ready-for-market proprietary Electrical Transmission and Distribution Open Conductor Detection Systems, interests in conventional oil assets in the Mid-Continent Region (USA), and maximizing an Intellectual Property License Agreement with ESG Clean Energy, LLC. That agreement leverages 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 more than US-based target markets are in play. Through its current majority stake, Camber will accrue value through 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. In addition to that, they can also accrue value through intellectual property rights to fully developed, patent-pending, ready-for-market proprietary Electric Transmission and Distribution Open Conductor Detection Systems.
In other words, the growth in CEI assets is fueling its larger mission through stable positive cash flows from conventional energy and resource opportunities and interests that do more than accelerate CEI’s development; they provide tangible support for higher valuations.
Moreover, those interests are expected to increase substantially, taking revenue growth in tow.
Planned Acquisition Supports Bullish Analyst Models
In Q4 last year, Camber Energy 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. Of course, these interests are commodity-price dependent, which in recessionary times can be weak. Still, despite current oil and natural gas market conditions, the agreement can be a significant growth catalyst as markets recover, whether later this year or in 2024. In either case, CEI can be well-positioned to capitalize. Analysts covering Camber Energy agree.
Lead analyst at Goldman Small Cap Research models for bullish performance, making a case for CEI shares to reach $2.75 this year. That expected 69% increase is supported by his factoring in the value inherent to its planned acquisitions. Foremost is that from CEI closing its planned merger with Viking Energy Group in Q3. According to the report, the combined revenue-generating firepower provides potent energy to steepen CEI’s stock price trajectory. Though Camber is already a diversified energy equipment and services company, Goldman believes the merger, once closed, could create new and lucrative opportunities. Specifically, he expects the deal would 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 added that while the deal is taking more time than expected to close, accretive steps taken in 2022 and so far in 2023 do get the two closer to consummating the agreement. CEI is already a majority owner in VKIN, and both companies understand the values added. Thus, despite a delay during a challenging period for smallcap energy stocks, the deal remains on track to close within the next two quarters. Once it does, Goldman suggests that CEI will be better positioned than ever to capitalize on and maximize the revenue potential inherent to a fortified pipeline business. Other acquisitions, including Camber’s intent to acquire a $55 million revenue-generating asset, are expected to strengthen that potential.
Ahead of that, plenty supports higher valuations 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 now, noting that those revenue projections support Goldman’s modeling for share prices to reach $2.75 over the next 6-9 months, resulting from a finalized merger and 4X 2024 E revenue. That multiple is based upon a review of peers in the ESG, energy, and specialty industrial equipment sectors. Still, it does not include the expected contributions from its other planned acquisitions.
Diesel Market Opportunities Also In-Play
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 about that interest. 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.
Value Through A Sum Of Its Parts
Thus, while parts of CEI can justify higher valuations, investors may be wise to look at the bigger picture. Camber Energy has indeed completed the groundwork necessary to transform into a significantly larger energy company, not only from an acquisitions perspective but also from strengthening its balance sheet to allow 2023 revenues to fall faster to the bottom line.
Hence, it’s the totality of circumstances that drives the value proposition. And they help expose a valuation disconnect between share price and assets worth seizing. Yes, there is still work to be done before CEI benefits fully from its ambitions. However, considering they are better positioned than ever financially and fundamentally to close their planned acquisitions, the path of least resistance for CEI stock is likely higher. And with several updates expected, perhaps even a headline announcing its 100% acquisition of VKIN, that trend could start sooner than later.
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