Scott Mc.
I like yourself wondered why Maxx Petroleum has
traded at such a low multiple value in relation to
It's peers. Maybe the market has finally realized
that Maxx is a good company that has the ability
to grow production in a profitable way.
After reading your note of september 27 I
decided to sit down and do a bit of general analysis
on how Max is being assesed by Nesbitt Burns. For
the exercise I used the information from Nesbitts
Red Book for the Third quarter of 1997. Taking
Nesbitts cash flow projections I tried to update
their chart for Domestic Junior Companies. The
quotes I have used are from Friday Sept 27,1997.
Below is what I found.
FROM NESBITTS RESEARCH WITH QUOTES
CHANGED TO REFLECT THE CURRENT TRADING LEVELS OF
THE COMPANIES WHICH ARE LISTED IN MAXX'S GROUP
Ratio Ratio
Current Current
Nesb. Nesb. Current Price Price
Estim. Estim Stock To Nesb. To Nesb.
1997 1998 Price Estimate Estimat
CFPS CFPS Sep27/97 97CFPS 98CFPS
Baytex(bte) $2.53 $3.55 $21.50 8.49 6.05
Genesis(gex) $0.95 $1.28 $ 8.85 9.31 6.91
Maxx (Mxp) $0.51 $0.61 $ 3.00 5.88 4.91
Richland(Rlp)$0.92 $1.21 $ 4.95 5.38 4.09
Starteck(Seh)$1.87 $2.41 $18.50 9.89 7.67
Summit(Sui) $1.47 $1.66 $ 6.75 4.59 4.06
Upton (Urc) $1.86 $2.65 $ 6.85 3.68 2.58
Westmin(Wml) $0.57 $0.99 $ 5.50 9.64 5.55
Totals colm $10.68 $14.36 $75.90 56.86 41.82
Average $ 1.33 $1.79 $ 9.48 7.11 5.22
Recent News Year End news release said that Max had
Increased its reserves from approximately 6.6 years
to 8.5 years.
In august Max announced it increased it
production to over 7000 BOE per day. This is approx.
16% above the average for the second quarter.
In Sept 97 Maxx announced that they were
increasing capital expenditures on drilling from
$42,000,000 to $52,000,000 while increasing it long
term debt to $42,000,000. In the news release they
state that they estimate the long term debt to now
equal approximately 1 years cash flow. Their drill
program estimates that they will drill 116 wells
(95Net). This compares to 84 wells in 1996
or (47.5 net). If they make their target, this means
Maxx will double the Net Wells drilled over last year.
Probably the most interesting thing that was
stated in the Sept news release was that Maxx's
long term debt will equal approximately 1 years
cash flow. There are approximately 54,000,000
shares of Max outstanding, if the $42,000,000
represents the next 12 month cash flow then if
we divide $42/$54=$.78. If this 78 Cents per
share does happen and Maxx trades at its current
trading level of 5.88 times projected cash flow,
then Max would be worth 5.88*.78=$4.60 Within
one year. If on the other hand Maxx traded up
to the average calculated above for 1997 that
would then make Maxx worth 7.10*.78=5.50 within
one year. By the way in the June Red Book
Nesbitts one year target for Maxx is $3.50. If
we look at their projected cash flow for 1997,
we see Max trading in twelve month at 6.86 times
Nesbitts 1997 estimated cash flow per share.
Hope this hasn't been too boring and please
check the numbers for yourself because I am proned
to mistakes. Like yourself I spent much time trying
to figure out why this company has been given such
a small value for its efforts. I hope that this move
is the beginning of something good for those of us
who have had the fortitude to stay with it.
Don C. |
