Post by
ChupacabraBueno on Mar 21, 2016 1:32pm
Bankers Petroleum Acquired At 25% Under Fair Value -SeekingA
This article from Seeking Alpha (by Laurent Cadotte) assesses BNK value @25% above the offer, but still endorses this move by BNK: Evaluation of the Offer The offer is C$2.20 per share in cash. This could seem low to some investors; the stock was trading at more than C$7 per share in mid-2014. However, it isn't realistic to hope for that kind of valuation again in the short to medium term: Oil will be lower for longer. External capital will be required to maintain production or production will fall. Indeed, let's take a look at the guidance for this year. The production is still expected to decrease 10%, even though the company has a capital budget of $65M. In other words, if oil doesn't shoot back up, the company -- by spending on par to its expected cash flow -- will see its production decrease. Bankers could take on more debt, which we know that management won't do. The returns on the investment until oil prices increase would have been very small for shareholders. Furthermore, relations with the government have been deteriorating for some time. They did remove "Albania is a safe jurisdiction" from their presentation. Now, we know that 1P reserves of the company are worth $648M after tax. The company had $52M in cash and $117M in debt at year-end, for a net value of -$65M. Let's say net 1P reserves are worth $583M. Using a USD/CAD ratio of 1.30, we have a net asset value of C$758M, or C$2.89 per share. The discount from the current offer amounts to C$180M. Has management and the board done the best they could? Some other factors could explain why the bid appears to be low: The current tensions in Albania could limit the interest by other investors. Investors are very cautious about investing in oil after the crash, especially in a risky market such as Albania. That didn't stop Shell (NYSE:RDS.A) from buying Petromanas' assets in Albania last February, but this transaction isn't the same: $45M for Shell is not significant. Furthermore, the project is in a very early stage; Shell won't be dealing with the Albanian government for quite some time. In summary, the offer appears to be missing about 25% more to be in the range of the company's current fair value. The question now is this: Will another investor offer that 25%? According to the management and the board of directors, no.
Full article at: https://seekingalpha.com/article/3959907-bankers-petroleum-acquired-25-percent-fair-value-thoughts?page=2