Camber Energy, Inc. (NYSE-Amer: CEI) moved closer to becoming a more prosperous company. Last week, they 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.
Still, while there's work to get done, the steps taken to date to get the deal closed are cumulative. Last week, company news added to a previous announcement saying the two companies executed an Amended and Restated Agreement and Plan of Merger, initially dated February 15, 2021. While investors have hoped this deal would have closed by now, it's important to note that investors of both companies want to be assured that their value earned is value kept. That's fine, and yes, crossing the T's and dotting the I tend to drag things out longer than expected.
Part of the delay includes eliminating potential dilution from prior warrant overhangs. CEI announced doing that 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. And that could expedite the closing of the deal. After all, a clean capital structure makes the agreement more appealing to all sides, especially the amendments that eliminate warrant overhangs, which generally lead to dilution, uncertainty, and valuation model adjustments. Best of all, with the steps taken for CEI to accrue 100% ownership of VKIN, they appear closer than ever to positioning themselves, fueled by additional VKIN assets, to accelerate expansion plans in domestic and international markets.
Video Link: https://www.youtube.com/embed/oW_rcVEwfQ4
Adding Revenues That Drop Toward Bottom Line
Those following Camber should understand that CEI shares appear disconnected from an appropriate valuation even ahead of the merger. It is shortsighted to suggest that CEI relies solely on its majority stake interest in VKIN. Camber indeed has 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.
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.
Making Sure Value Earned Is Value Kept
Most important to the value proposition is that CEI shares are getting into more shareholder-friendly hands, resulting from Camber extinguishing prior agreements related to specific warrant overhands. That's a big deal and critical to CEI maximizing the potential inherent to a busy 2023 agenda since that updated agreement can limit potential dilution, facilitating the additional revenue contributions from VKIN to fall faster toward the bottom line. Remember, VKIN is no small company.
Despite its sub-dollar share price, they are a rapidly 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.
Analyst At Goldman Small Cap Research Models For Bullish Upside
There's another deal in CEI's crosshairs. Camber recently announced 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.
A Bullish Setup For 2H/2023
Thus, with the model suggesting an appreciable upside in play for investors at current levels, factoring in the potential from other planned deals make the value proposition even more compelling. It's also important to note that 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, it would likely lead analysts to change the inputs to their models. In this case, the CEI bulls may appreciate the outcome, noting that higher revenues generally create a path of least resistance toward the upside.
Of course, arguments can be made that analysts often miss the targets. But what's important to understand is that they rely on information they deem accurate, reachable, and current to the valuation model. In this case, based on the data inherent to Camber Energy and Viking Energy, real numbers plus prudent expectations support modeling a significantly higher share price. Moreover, the GSCR model doesn't account for the potential that could accrue if Camber closes its Diesel plant deal. If it does, and with the potential to tap into an estimated $300 million in revenues, the model's expectation for shares to surge by over 140% from current levels may be conservative. Therefore, trading ahead of expected updates that support that model may be a wise and timely consideration.
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