Reasons to be optimistic.......
1) Oil prices have recovered substantially and there is a good chance
that they will go further. Based on the last couple of quarters, SFY's
output is now 33% oil, which means that they should be benefitting from
the price rises.
2) NG pricing has fallen back a little in the last week because the
AGA figures are still high (there is still a lot of NG in storage).
However, pricing in the futures market for the end of the year are
looking good. Furthermore, with oil currently strong, and the cost
ratio of O:NG presently around 7.5 ("trend" suggests that 6.5 should
be a more realistic number) it seems likely that NG will increasingly
become the fuel of choice for those with dual-fuel set-ups (once
existing supply contracts unwind). Together with the effects of low
drilling beginning to filter through the industry, it seems likely
that NG will become scarcer and prices will continue to strengthen.
3) The analyst ratings on SFY have been steadily improving. In addition
to the "high profile" upgrades to "buy" last month, one analyst who
had a "hold" on the stock appears to have stopped coverage. The net
effect is that the average rating is now better than 1.9, with momentum
suggesting the average will continue to improve.
4) The analyst ratings on earnings are quietly improving all the time.
In the last 6 weeks, the average estimates (First Call) have changed -
Q2 0.11 >>> 0.23
'99 0.68 >>> 0.90
'00 1.18 >>> 1.38
The momentum is strongly upwards (and should continue upwards as long
as Oil and NG prices continue to hold or strengthen). The revised
numbers are getting close to my target figures of $1 for '99 and >$1.50
for '00. Message 8300061
5) The peculiarities of PV-10 accounting mean that the capital hit
that SFY to took last year to write down reserves will reappear (subject
to commodity price strength) on the future earnings line as a reduction
in dd&a. In effect, some $50m will flow through to earnings over the
next several years.
6) By the time we get the Q3 figures (about 4 months time), we will
be a year past the point when the write-down hit last year. All of
the share data screens showing trailing twelve month earnings will
then begin to reflect the real earnings situation (free of the
one-off charge). We will then also get a PE ratio again!
7) The New Zealand drilling will likely yield results at around the
end of the year. This isn't factored into the stock price and could give
another positive hit if things work out well. Checkout the Yahoo! msg
at - messages.yahoo.com
All things considered, we stand a good chance of having a very profitable
next 12 months......
Mark |
