RE: Watch It Go Now!Peter's & Co put out a report on Paramount on September 18,2002.
The Exact Highlights & Assumptions were:
Gas at $4.00 to $4.68 per mcf Canadian, then distributable income at $1.50 to $2.00 per Trust Unit. Based on peer energy trusts, Paramount Trust should trade in the range of about $7.50 as a low up to $18.00 as a high. A 20% payout rate is used because the reserves are low life (the shorter the reserve life index, the higher the payout needs to be).
Gas has been trading over $7.00 per mcf Canadian, therefore distributable income would be closer to $2.60 per Trust Unit. At a low life reserve factor of 20%, this would equate to a Trust Unit price of closer to $13.00. If they can get the reserve life index up, the payout rate % declines and the price of the unit goes up. At 15% payout the Trust Unit should be worth $17.33 under this example.
After the dividend into the trust is taken into account, the 12 Month target price of Paramount Resources is still $18/share. It will drop for a while after the dividend is paid to the trust.
The Trust Units are supposed to be availabe at $5.05 / unit.
You do the math from here. At minimum, that is a $2.50 increase in Unit Price, plus at least $1.50 a year in payout per unit. At current gas prices we are looking at a Unit Price of closer to $13.00 plus $2.60 in Unit payout per year. That puts a Trust Unit value at $15.60 in 12 months. That is over 3 times the initial $5.05 per Trust Unit cost to purchase (and this calculation doesn't include the free trust units you get in the Paramount Resources Dividend).
Seems to me this as safe a bet as you can make these days in the market.
Can anybody see where the potential risk/downside is to this deal?
ARRHW