Hibiscus: E&P Player, Almost Tripling in Size After Inexpensive Acquisition

Family office investor Samir Mohamed presented his investment thesis on Hibiscus Petroleum (Malaysia: HIBISCS) at Asian Investing Summit 2022.

Thesis summary:

Hibiscus is a small upstream oil & gas company with producing assets in UK, Malaysia and Vietnam.

In January 2022, the company received the last approvals to acquire Repsol’s assets in Malaysia and Vietnam. The acquisition will almost triple Hibiscus’ oil & gas production and add 60% to its reserves. Thanks to a low acquisition price, strong cash flows, and share issuance in 2021, the company remains free of net debt after the acquisition.

The company has a good capital allocation track record. It benefits from constrained oil & gas supply dynamics, as many Western oil majors are forced by ESG-oriented investors and political pressure to limit capital spending on fossil fuels. In addition, these factors create growth potential for Hibiscus, as oil majors divest fossil fuel assets.

Management owns 8.9% of outstanding shares; there is no majority shareholder, and the company has won several prizes for corporate governance and public transparency for shareholders. Its investor relations material is almost on par with many European companies.

Depending on the reserve classification, Hibiscus’ oil & gas will last for another 9-17 years of production. Including the acquisition — which is not yet included in published financial statements — the company trades at an EV/EBIT below 2x, and P/E and EV/FCF below 3x using conservative assumptions.

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About the instructor:

Samir Mohamed started with value investing in 1999 and manages a private family fund, full time since 2016. He focuses on good businesses with temporary problems and suppressed stock prices. Samir enjoys collaborating with other value investors regularly via in-person meetings or Skype calls. He was global head of the product management teams of a 170 Mio. EUR industrial business at Siemens. He worked at Siemens for 13 years. Samir has a master’s degree in Management, Technology, and Economics and a bachelor’s degree in material science, both from ETH Zurich.

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