Linc Energy Ltd

*Sale of Carmichael Mine Royalty to Adani for A$155M: Linc Energy has entered into a binding Option Deed with Adani Group for the transfer of Linc Energy's benefits in and obligations under the Carmichael Royalty Deed to Adani. Adani will pay A$155 million consideration in two installments: A$90 million in cash within five days of the exercise of the Option and the balance of A$65 million in cash on or before 12 months from the date of signing. This is the first of a number of transactions that the company is looking to undertake in the short to medium term. The deal highlights that the company is looking to simplify its business and focus on the development of core assets, including its shale exploration venture in South Australia. *High gearing, delay in coal asset portfolio sale and need for cash drives Carmichael sale in our view. Linc Energy’s current net debt to equity stands at 79.8%. With the coal asset portfolio selldown delayed, we believe the company has undertaken the sale of Carmichael Royalty assets to Adani. *A$155M sales proceeds vs. J.P. Morgan estimate of A$287M for Carmichael assets: While the company highlights this transaction as a positive development, the proceeds from the sale stand at A$155M vs. J.P. Morgan estimate of A$287M. This leads to a shortfall of A$132M which translates approximately to S$0.25 per share within our current price target of S$1.45 per share. *Reiterate Neutral: Sale is positive for cash proceeds but negative to valuation. Our SOTP-based Jun-15 price target of S$1.45 implies a 1.2x/1.1x FY14E/FY15E and 14.8x/11.7x FY14E/FY15E EV/EBITDA.