Hope this helps, Still a solid companyChart of the Day: Un-Boo-Lievable Valuations
· With the intermediate E&P sector down 33% since June 20
th, we highlight whether a change in the numerator (Valuation) or a change in the denominator (2015 CFPS) is responsible for the collapse in share prices. With updated commodity prices beginning to flow through consensus CFPS estimates, the average CFPS forecast is now down 4% suggesting a decline in valuations (which are down an average of 25% across the sector), are mostly responsible for the share price decline.
· Part of the decline in valuation is likely due to the consensus call on commodity prices that have not fallen enough yet. The current 2015 WTI call is $90.90/bbl but should fall another 10% to match the current strip at $81.25/bbl, while the AECO call at $4.08/mcf likely still needs to fall 10% (to $3.65/mcf). Assuming an average cashflow margin of 65%, cashflow estimates need to fall another 15% on average. That said, it would still suggest the collapse in valuations have overcorrected based on the decline in cashflow and perhaps with a stabilization in commodity prices, we may see a reversion and rebound in valuations, especially for names that have seen the largest overcorrection relative to other industry players.
· We highlight 7 names above (
Delphi,
Legacy,
Cequence,
DeeThree,
RMP,
Trilogy and
Kelt), that have seen a decline in CFPS of only 3%, yet an average decline in the EV/DACF multiple of 37% - a significant discrepancy from many other intermediate names. When sentiment turns positive once again for the sector, these names likely could see the strongest expansion in multiples that should lead to above average share price performance,.
.