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Meren Energy
MER-T
PARTIAL BUY
Jul 14, 2025
$1.680
Stock price when the opinion was issued
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PAST TOP PICK
(A Top Pick Jul 19/24, Down 26%)
(Name changed from Africa Oil on 15 May 2025.)
Bought out joint venture partner in Nigeria. Has begun the process of decapitalizing. Generates substantial surplus cashflow, which it's returning to shareholders via dividends and buybacks. Market is nervous about Nigeria, as it should be. Controlling shareholders have been reducing their ownership. CEO, whom he respected, has resigned.
He continues to own it in the hopes that some of the cashflow can be directed to exploring the extraordinary potential in the country.
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MER is interesting. A lot of its oil production is hedged, which is great when there is oil weakness and not s great in an oil rally. Still, it is a very cheap stock and offers a very high dividend right now. The merger with Prime looks good, though the discussions with Tullow have collapsed. It gets a good premium on its production, a combination of good transportation costs, hedging and grades as well. With its very large 2022 discovery now getting more developed (the largest in the world in many years) the growth outlook we think is better than many Canadian names. Risks are still higher, though. With the dividend (likely OK), growth, management, shareholders and benefits of the merger, we do think it should be trading at more than 6X earnings. The average analyst target price is more than twice the current trading price.
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