Analysis of ARD FY2007 Earnings Estimates
Expect Wallstreet to Increase ARD Projected Earnings
Yesterday Wallstreet increased ARD FY2007 consensus EPS estimate from:
$2.46 to $2.61.......UP $0.15
The previous day ARD FY2007 consensus EPS estimate was increased from $2.30 to $2.46. So in the last two days we have seen FY2007 estimates increased $0.31 or 13.4%. The increases the last 2 days were a result of the fantastic results of the Q2 Operational Update. There were two key elements of the Operational Update. The first was the estimated revenue of $14.5 million. The second was the estimated production of 240,000 BOE. Another item that was buried in the release was the announcement of a partnership between ARD and another Tulsa based company.
The partnership was revealed in the Q2 Operational Update when it was stated, "Syracuse Prospect, Hamilton County, Kansas -- Two exploratory wells were drilled on this 18,000-acre lease and are currently being completed and readied for production. The two wells were drilled as part of a joint venture the company has entered into with another Tulsa-based energy company. The partnership will evaluate the results and then determine a future development program."
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 million shares fully diluted. (Let's assume that ARD offer another 1 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 million (Conservative)
____17 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 million shares = $2.70 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 million shares = $4.25 EPS.
By conservative estimates we should expect ARD to come in at a worst case scenario of $2.70 EPS. A more realistic expectation for ARD shareholders would be for 2007 EPS of $4.25. If $2.70 is the low end, $4.25 is the middle ground then the high end is something north of $4.25. 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
$2.70 X 30 = $81
$2.70 X 35 = $94.5
$2.70 X 38 = $102.6
Share Price Projections based on EPS of $4.25
$4.25 X 30 = $127.5
$4.25 X 35 = $148.75
$4.25 X 38 = $161.5
The purpose of today's exercise in math is to show that 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.
Expect Wallstreet to Increase ARD Projected Earnings
Yesterday Wallstreet increased ARD FY2007 consensus EPS estimate from:
$2.46 to $2.61.......UP $0.15
The previous day ARD FY2007 consensus EPS estimate was increased from $2.30 to $2.46. So in the last two days we have seen FY2007 estimates increased $0.31 or 13.4%. The increases the last 2 days were a result of the fantastic results of the Q2 Operational Update. There were two key elements of the Operational Update. The first was the estimated revenue of $14.5 million. The second was the estimated production of 240,000 BOE. Another item that was buried in the release was the announcement of a partnership between ARD and another Tulsa based company.
The partnership was revealed in the Q2 Operational Update when it was stated, "Syracuse Prospect, Hamilton County, Kansas -- Two exploratory wells were drilled on this 18,000-acre lease and are currently being completed and readied for production. The two wells were drilled as part of a joint venture the company has entered into with another Tulsa-based energy company. The partnership will evaluate the results and then determine a future development program."
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 million shares fully diluted. (Let's assume that ARD offer another 1 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 million (Conservative)
____17 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 million shares = $2.70 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 million shares = $4.25 EPS.
By conservative estimates we should expect ARD to come in at a worst case scenario of $2.70 EPS. A more realistic expectation for ARD shareholders would be for 2007 EPS of $4.25. If $2.70 is the low end, $4.25 is the middle ground then the high end is something north of $4.25. 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
$2.70 X 30 = $81
$2.70 X 35 = $94.5
$2.70 X 38 = $102.6
Share Price Projections based on EPS of $4.25
$4.25 X 30 = $127.5
$4.25 X 35 = $148.75
$4.25 X 38 = $161.5
The purpose of today's exercise in math is to show that 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 12:11 PM
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