PRIVATE RESEARCH NOTE · PREPARED FOR A MORNINGPICK MEMBER

CNE.L — Palliser's Second Rodeo, and Why Cairo Now Holds the Casting Vote

PRICE GBp 346	MKT CAP GBp 237M	P/E 9.4x	P/B 0.5x
EV/EBITDA 1.6x	FCF YIELD 33.5%	DIV YIELD 0.0%	52W RANGE 182–348

NEXT EARNINGS 8 Sept

Buy Capricorn into a fixed-price cash exit, not because it's cheap — the statistical discount that made this name interesting is largely gone — but because the market is still pricing meaningful doubt about a deal where the real uncertainty is a single administrative signature in Cairo, not financing, not shareholder votes, and not price. At 346p against a headline value of 357p, you're being paid roughly 3% to underwrite EGPC's consent to a change of control. That's a merger-arb trade dressed up as an energy note, and I want to be upfront about that shift before we go further.

On 2 July 2026 Genel Energy agreed to buy Capricorn for $4.74 a share — $3.75 in cash plus a $0.99 special dividend — valuing the equity at roughly $360 million, via a recommended scheme of arrangement. That's a sterling equivalent of 357p, representing a 34% premium to Capricorn's closing price of 266 pence on March 10, 2026, the day before the offer period began. The stock has since ripped to a decade high, trading at 346p as of today's data (3 July 2026) — within 3% of deal value, which is exactly the gap this note is about. This is the direct GENL.L read-through I flagged you'd want to watch when we last discussed the Kurdistan energy theme.

Capricorn doesn't drill its own wells — it's a 50% non-operating partner in eight Egyptian Western Desert concessions, with Cheiron running the rigs. That's the memorable bit: a London-listed E&P with 45 full-time employees whose entire $135.8m of FY2025 revenue comes from a joint venture it doesn't operate, collecting cash from one customer, the Egyptian state oil company EGPC. In May 2025 Capricorn merged eight separate 50:50 concessions into one integrated licence with better fiscal terms — the deal management calls the pivot from "turnaround" to "growth story" on the Q4 call. Since 2023 the company has returned about $600 million to shareholders while shedding legacy North Sea and international exploration exposure — worth reading in Capricorn's own account of that reset.

1. Deal certainty is unusually high for a small-cap scheme. Genel has locked up irrevocable undertakings covering 39.3% of shares from Palliser Capital, Newtyn, Kite Lake and Madison Avenue, and those undertakings only break if a competing bid tops the $360m Acquisition Value by 6.5% or more. Palliser is the same activist that forced Capricorn's chair and CEO to resign in a prior board fight after it judged an earlier merger (with NewMed) value-destructive — this time it's locked in support, which is a meaningfully different signal than the last time this shareholder base spoke up.
2. The break-scenario floor is higher than it looks. Group net cash was $103m at end-2025 with a 2.44x current ratio, and the Street's (thin) forward estimates show FY2026 EPS consensus jumping to $0.99 from FY2025's $0.28 — two analysts, but directionally consistent with the merged-concession ramp management described on the call. A busted deal doesn't send this back to zero.
3. The remaining spread is priced almost entirely for one condition — EGPC consent — not execution or financing risk; Bidco's cash is already arranged via a bridge facility plus existing resources.

Be careful with the multiples in most databases here, including this one: the 0.48x price-to-book and price-to-tangible-book figures reflect Capricorn's FY2025 year-end price — back-solving from the reported 9.38x trailing P/E and $0.277 EPS implies a stock trading near $2.60/share, well before the bid speculation that's since pushed it to a decade high. At today's 346p, converting via the deal's own announced cross-rate (357p = $4.74, so roughly $1.33/£), the stock is closer to $4.59/share — against book value of $5.44 and tangible book of $5.28, that's roughly 0.84x P/B and 0.87x P/TB, not 0.48x. Same story on EV/EBITDA: the dataset's 1.57x is stale; recomputing off today's ~£237m market cap and the $103m net cash position gets you closer to 3.5x FY2025 EBITDA of $59.6m. The takeaway: this is no longer a below-tangible-book value trade — the market has already closed most of that gap in anticipation of the deal. What's left is a straightforward probability bet on completion.

There are no analyst ratings or price targets in the data at all — Capricorn is effectively orphaned coverage, unsurprising for a 45-employee, $237m market cap E&P that spent three years de-risking rather than growing. The forward estimates that do exist (2 analysts for 2026-27, 1 for 2028) show revenue climbing from $135.8m to a projected $206.9m by 2028 and EPS nearly quintupling — numbers that are now academic unless the scheme lapses, since a fixed $4.74 cash offer caps the upside regardless of how good Egypt gets. Notably, the one hard data point on execution — Capricorn's closing price of 266 pence on March 10, 2026 versus a Q3 2025 quarter where actual EPS of -0.0696 beat the -0.19741 estimate on revenue of $43.8m against a $37.7m estimate — suggests operational momentum was already improving before Genel showed up, which is presumably why the board didn't need to be dragged to the table this time.

The scheme document is due within 28 days of the 2 July announcement — call it by 30 July — followed by the Court Meeting and General Meeting requiring 75% approval of votes cast, both very likely given the 39.3% lock-up plus board unanimity. The Long-stop Date is 2 January 2027, and the only conditions standing between here and cash are the Egyptian Condition and Egyptian Merger Condition — EGPC's consent to the change of control. Genel has already opened talks with the Egyptian government and states it will seek Takeover Panel consent to invoke the Egyptian Condition if it isn't satisfied by the long-stop — a tell that management isn't fully confident of a quick yes. Post-completion, Capricorn delists, re-registers as a private company, and its Edinburgh HQ folds into a London-based Enlarged Group, with likely headcount reductions concentrated in corporate functions.

1. EGPC says no, or says nothing. The whole spread is a bet on a foreign state oil company's discretion, and Capricorn's own CFO flagged receivables/single-customer collection as the principal risk investors overlook on the Q4 call — that same counterparty now has to approve who owns the asset.
2. The $75m Permitted Dividend doesn't get paid in full. It represents a large chunk of the $129m cash balance as of 31 May 2026, and the board's own language notes circumstances outside its control could prevent payment — which could in turn jeopardize the scheme itself.
3. Thin, FX-exposed spread over a long clock. Only the $3.75 cash leg converts via a fixed facility; the dividend and any elected sterling conversion float with spot rates nearer completion. A ~3% spread isn't generous compensation if this drifts toward the January 2027 long-stop.

Watch Investegate's Capricorn feed for the scheme document (due ~30 July 2026) and any EGPC commentary — a clean consent announcement should collapse the spread to near zero and this trade is done. If the spread widens past mid-single digits as the January 2027 long-stop approaches without visible EGPC progress, I'd cut the position rather than hold for a Panel ruling on invoking the condition. And if Cafani Group re-emerges with a topping bid below the 6.5% threshold needed to spring the irrevocables, ignore the noise — the lock-up holds.