RE:RE:3 Stock Price Questions" I'm smart too Mikey." (Fredo line from the Godfather before Michael bumped him off)
I believe this can be a great long term investment. That said, my critique of Tylerod's analysis are as follows:
1. Actual Net margins will be well below 85%. After 20% royalty, 4% severance tax, $12 mil of cash operating costs, $8 million of G&A and a 30% tax rate, we are left with $100 milion of net income IF revenue is $200 million, so about a 50% margin.
2. The above is based on selling at current spot price directly to end users. Plant #2, if similar in size will,in my opinion, not be able to sell all its volume to end users. The local Phoenix market would have to be 4% of GLOBAL demand, Not a chance. I don't believe what Don M. says on this issue. So plant #2 is $150 million in revenue and $70 million in earnings if half the output is sold direct and half to the big distributors.(At 50% 0f retail price.) Gas going through Plant #2 may have a richer He content which would render my estimate low.
3. Plant #3 will sell all of its output to the distributors and generate $100 million of revenue and $42 million of earnings.
So, by 2026, we may have $450 million in annual revenue potential and $212 in earnings. No allowance was made for natural decline and ancillary revenue streams Argon, Hydrogen etc were not considered. That's $2.50/share of EPS. With capital requirements of say $25-30 million, this could support a $2.00 dividend. A conservative 10 multiple gives us a $25 stock with an 8% current yield.
Lots of variables to consider but the biggest risk seems to be pricing. Can $2/cf retail prices hold up? I have no idea.