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Solo Oil’s potential upside detailed in new broker valuation

“We are confident that the HHDL transaction provides an important taste of things to come,” Shore Capital analyst Craig Howie said
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Howie values Solo at 3.5p per share

Solo Oil PLC (LON:SOLO) set “an excellent precedent” with its deal to sell out of the Horse Hill project, that’s according to stockbroker Shore Capital.

In late August, Solo agreed to sell its position in Horse Hill to UK Oil & Gas Investments PLC (LON:UKOG), and, as a result, it ended up with a 4.2% stake in its AIM-peer.

Solo now free of any future direct-cost exposure

“In our opinion, this transaction is an extremely positive development, with the disposal representing an important step in Solo’s monetisation strategy under its reinvigorated board,” analyst Craig Howie said in a note.

“Solo’s disposal of its interest in HHDL provides a liquid investment with a clear mark-to-market, which sees Solo’s new shareholding in UKOG valued at £5mln.”

READ: Solo Oil advances on deal with UKOG for Horse Hill exit

He added: “Solo is now free of any future direct cost exposure at Horse Hill, where long term testing is underway, but remains positioned to share in future upside from this high profile project.

“We are confident that the HHDL transaction provides an important taste of things to come.”

Howie has written up a new sum-of-parts valuation, putting Solo’s worth at 3.5p per share – which suggests substantial upside to Solo’s current price of 2.28p.

The Shore Capital analyst highlighted that the monetisation efforts may extend to Solo’s Tanzania assets, but, it won’t be forced into doing any business too early.

“Under Solo’s reinvigorated board (including non-executive Chairman Alastair Ferguson and Managing Director Dan Maling), monetisation of existing interests has come to the fore, including at the flagship Ruvuma project in Tanzania, which we continue to believe is the portfolio’s most important value constituent.

“However, Solo is now positioned to stand its corner as activities ramp up at Ruvuma and we see scope for the Chikumbi-1 well to act as a powerful catalyst.”

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