Hello Paul,
I agree with you regarding using NAV analysis to at least initially screen E&P companies. If NAV is greater than EV, there's at least a potential value stock.
In theory, if NAV is greater than EV, the projections by analysts of eps, cash flows, and p/e should also make sense from a valuation perspective. So, the way that I'm looking at things, I'm looking at NAV first and then seeing the other projections to make sure the story seems reasonable. It does with ATPG, but I'm having a harder time finding such favorable ratios and valuations with other E&P's out there. I see slight discounts, but not enough for me to take the plunge.
As you mentioned, I too don't really look at valuations based on mmboe, undeveloped land, or total oil and gas as main screening tools for stocks because I'm more comfortable with a NAV approach. But that being said, I do think that looking at recent acquisition values (lots of e&p acquisitions these days) based on these metrics and comparing them to ATPG has still made the stock look favorable. I think that if I were in another oil company, I would tend to use these metrics as check figures to make sure again that the overall undervaluation seems reasonable.
Thanks,
cw |
