Amendment: Analysis of ARD FY2007 Earnings Estimates
Share Count Revised Higher
In the latest S-3/A filing with the SEC it was noted on page 3 that the common stock to be outstanding after the offering (including option and warrants) is 16,247,484 shares. Previously I calculated 16 million even. For purposes of EPS calculations I"ll use an even more conservative share count that will not only take into account the slightly higher share count of 16.24 million shares (original calculation was 16 million shares) but also factor in an extra 191,070 shares to be even more conservative in my projections for 2007.
It is evident that even after the latest upward revisions in ARD FY2007 EPS estimates the current estimate of $2.61 is still dirt cheap.
Why?
Lets work the math...
Assume the following:
1. 17.438 million shares fully diluted. (Let's assume that ARD offer another 1.191 million to acquire new reserves or for Capex.)
2. Net profit margin of 45% (48.9% average net profit margin in 2007 is my actual projection based on current information.)
3. $68 Average Realized Price ($80 average realized price in 2007 is my actual projection based on current information.)
4. 1.5 million BOE produced. (This projected growth of 50% is conservative in light of historical growth of 93%, 74% and 127% growth in 2003, 2004 and 2005 respectively. 85% production growth is my actual target.)
In essence I"m offering two figures. The first is a conservative estimate and the second is my actual projection.
1. Shares Outstanding:
____17.43 million (Conservative)
____17.43 million (Realistic)
2. 2007 Net Profit Margin:
____45% (Conservative)
____48.9% (Realistic)
3. Average Realized Price per BOE
____$68 (Conservative)
____$80 (Realistic)
4. Production Estimate for 2007
____1.5mm BOE (Conservative)
____1.85mmBOE (Realistic)
Lets do the math first from the conservative viewpoint.
Revenue:
1.5mm (BOE) X $68 (Ave Realized price)= $102 million
Net income:
$102 mm (revenue) X .45 (net profit margin) = $45.9 mm
EPS:
$45.9 mm (net income)/ 17.43 million shares = $2.63 EPS.
Now lets figure the more realistic earnings potential of ARD in 2007.
Revenue:
1.85mm (BOE) X $80 (ave realized price)= $148 million
Net income:
$148mm (revenue) X .489 (net profit margin)=$72.37mm
EPS:
$72.37 mm(net income) /17.42 million shares = $4.15 EPS.
By conservative estimates we should expect ARD to come in at a worst case scenario of $2.63 EPS. A more realistic expectation for ARD shareholders would be for 2007 EPS of $4.15. If $2.63 is the low end, $4.15 is the middle ground then the high end is something north of $4.15. At this point it doesn't make any sense to even try to determine the high end.
Lets now use both of these figures and use a conservative PE multiple of 30, a more realistic multiple of 35, and a high end multiple of 38 (current PE today.)Share Price Projections based on EPS of $2.70
$2.63 X 30 = $78.9
$2.63 X 35 = $92.05
$2.63 X 38 = $99.94
Share Price Projections based on EPS of $4.25
$4.15 X 30 = $124.5
$4.15 X 35 = $145.25
$4.15 X 38 = $157.7
Even with a slightly higher share count assumption, the current 2007 estimate of $2.61 is low and proof that Wallstreet has yet to realize the true value in E&P companies and especially ARD.
Share Count Revised Higher
In the latest S-3/A filing with the SEC it was noted on page 3 that the common stock to be outstanding after the offering (including option and warrants) is 16,247,484 shares. Previously I calculated 16 million even. For purposes of EPS calculations I"ll use an even more conservative share count that will not only take into account the slightly higher share count of 16.24 million shares (original calculation was 16 million shares) but also factor in an extra 191,070 shares to be even more conservative in my projections for 2007.
It is evident that even after the latest upward revisions in ARD FY2007 EPS estimates the current estimate of $2.61 is still dirt cheap.
Why?
Lets work the math...
Assume the following:
1. 17.438 million shares fully diluted. (Let's assume that ARD offer another 1.191 million to acquire new reserves or for Capex.)
2. Net profit margin of 45% (48.9% average net profit margin in 2007 is my actual projection based on current information.)
3. $68 Average Realized Price ($80 average realized price in 2007 is my actual projection based on current information.)
4. 1.5 million BOE produced. (This projected growth of 50% is conservative in light of historical growth of 93%, 74% and 127% growth in 2003, 2004 and 2005 respectively. 85% production growth is my actual target.)
In essence I"m offering two figures. The first is a conservative estimate and the second is my actual projection.
1. Shares Outstanding:
____17.43 million (Conservative)
____17.43 million (Realistic)
2. 2007 Net Profit Margin:
____45% (Conservative)
____48.9% (Realistic)
3. Average Realized Price per BOE
____$68 (Conservative)
____$80 (Realistic)
4. Production Estimate for 2007
____1.5mm BOE (Conservative)
____1.85mmBOE (Realistic)
Lets do the math first from the conservative viewpoint.
Revenue:
1.5mm (BOE) X $68 (Ave Realized price)= $102 million
Net income:
$102 mm (revenue) X .45 (net profit margin) = $45.9 mm
EPS:
$45.9 mm (net income)/ 17.43 million shares = $2.63 EPS.
Now lets figure the more realistic earnings potential of ARD in 2007.
Revenue:
1.85mm (BOE) X $80 (ave realized price)= $148 million
Net income:
$148mm (revenue) X .489 (net profit margin)=$72.37mm
EPS:
$72.37 mm(net income) /17.42 million shares = $4.15 EPS.
By conservative estimates we should expect ARD to come in at a worst case scenario of $2.63 EPS. A more realistic expectation for ARD shareholders would be for 2007 EPS of $4.15. If $2.63 is the low end, $4.15 is the middle ground then the high end is something north of $4.15. At this point it doesn't make any sense to even try to determine the high end.
Lets now use both of these figures and use a conservative PE multiple of 30, a more realistic multiple of 35, and a high end multiple of 38 (current PE today.)Share Price Projections based on EPS of $2.70
$2.63 X 30 = $78.9
$2.63 X 35 = $92.05
$2.63 X 38 = $99.94
Share Price Projections based on EPS of $4.25
$4.15 X 30 = $124.5
$4.15 X 35 = $145.25
$4.15 X 38 = $157.7
Even with a slightly higher share count assumption, the current 2007 estimate of $2.61 is low and proof that Wallstreet has yet to realize the true value in E&P companies and especially ARD.
posted by -Aztec- at 10:14 AM
<< Home