Post by
MyHoneyPot on Dec 01, 2024 10:05pm
Analysis to express to Vermillion Management- Any Thoughts?
Vermillion is trading at an FCF multiple that represents a significant market mispricing of the common stock. Trading at an FCF multiple, where the company has trailing generation of $750 million dollars in FCF for a stock with only a 2.2-billion-dollar market cap, suggests an FCF return of 34 % with respect to the trailing 4 quarters.
That is while funding a trailing Capex Budget of 565 million, to maintain production, bring on Mica, and do exploration drilling in Germany and Croatia where in many cases the Cash Flow will not start to realize until later in 2025, and 2026.
The company has reduced 409 million in debt and reduced its share count this year by over 8 million shares.
The company is free from many of the issues that plague other oil companies, their debt is .6 times trailing FFO, they only have 155 million shares outstanding, and their dividend is a small and insignificant when compared to the FFO and FCF generation. They are structurally solid.
The crossroads that I see the company is at is that there is no project that they can invest in that would provide a better return than buying back their own shares. The internal ROE is nowhere near 34% and any capital they spend on increasing production likely would provide better returns in the form of share buybacks.
I understand that stopping all capital spending is not good for any company, and they have plenty of room on the balance sheet to increase debt, but I don’t think it is a requirement, however the company knows best.
Over the past 4 quarters the company has realized 1315 million in FFO and only spent 565 million on Capex.
Clearly the value of the company is not realized in the trading price of the stock, it is severely mispriced, but I think it is time to call on the company to take strategic action to remedy this situation.
Vermillion needs to act, whatever the management decides either through increased dividends, share buybacks, special dividends, or asset sales, to remedy this poor evaluation associated with the stock.
If VET traded at 10% trailing FCF it would be it would be a $48 dollar stock.
750 million/155 shares= $4.838 dollars time 10 = $48.38
I think I need to send this to the company and encourage them to take action to resolve this shareholder concern. I believe the FCF generation of VET is only going to increase with the existing ongoing projects.
Your thoughts and opinions are important.
Respectfully
IMHO
MHP