Market misunderstands TOLThe market price for TOL is completely irrational and far, far below intrinsic value.
At the current price of $3.38, and $5.5mm of working capital with nodebt, the company has an EV of $100mm. It is trading at $80,000 / boe/d(current), $42,000 / boe/d (exit), $12.00 / P+P boe and under 4x 2011Ecash flow (unlevered). Comparable oil-weighted, high growth juniors inthe cardium have valuations of ~$140,000 / boe/d and >8x 2011E CF.TOL is currently trading at half of the mutliple of its comps. Arational investor can expect TOL to trade in-line with its comps(especially once more Lochend results come out), resulting in a 100%gain in the stock.
If we look at an asset level sum of the parts, we can see the at an EVof $100mm, the market is attributing zero value to Lochend, thecompany's main asset. Looking at Magnum Hunter's acquisition of NuLoch,they paid >$3,000 per acre for the Tableland assets (remember TOL isNuLoch's minority partner in the play). If we apply a conservativemultiple of $2,500 per acre for the company's 30.9 net sections, we get avalue of $50mm for TOL's Tableland assets. TOL paid $64mm for itsSweeney / Pouce Coupe assets. Let's assume they overpaid by $10mm(which is conservative given oil prices are up >50% since they boughtthem in early 2010). They also sold 300 boe/d of these assets for$6mm. This gets us to $50mm for Sweeney / Pouce Coupe.
$50mm for Tableland + $50mm for Sweeney / Pouce Coupe = $100mm. With acurrent EV of $100mm, the market is saying that Lochend is worth zero.If we look at TVE, SPE or other cardium focused producers, thesecompanies imply a far higher value for cardium assets than zero. TVEhas a much smaller footprint in Lochend but is worth >$60mm. Thisdoesn't make any sense to the rational investor.
I believe the recent sell-off was someone who got well results beforethe rest of the market (remember TOL was completing a few wells inFeb). You're naive to think that insider trading isn't rampant incanadian markets (i see it all the time especially in mining M&A).
Given its current valuation, I'm sticking with TOL, and will most likelyadd to the position at these low levels. My thesis is soundlysupported by private market value, asset-level sum of the partsanalysis. It's up to the management to execute and if they meet theirguidance of 2,300 - 2,500 boe/d exit production, and if they do, thenthe stock will be north of $8.00.
If I was Russ Tripp, I would seriously consider selling the Tablelandassets to Magnum Hunter. I believe Magnum Hunter would be willing topay up to $50mm ($2,500 per acre). Monetizing this non-operated assetat half of the current EV would encourage the street to get behind thestock.