Marcman Tipster / Ohio Resources
Last Trade $0.90
Don't agree on the tip. This is a company I've been aware of for some
time, but have not followed very closely. However, permit me pass on
some observations.
Being debt free is good, if the reasoning is sound. In their case,
they have seen limited drilling activity in 1997, thus very little
spending/reinvestment.
1997 has not been a good year on a quarter to quarter basis. The
company doesn't report production numbers, That doesn't sit good with
me. However, they do report revenue and quarterly cash flow. Here
are the findings for the six previous quarters.
4thQtr 1stQtr 2ndQtr 3rdQtr 4thQtr 1stQtr
073196 103196 013197 043097 073197 103197
Revenue $ 622,223 $ 553,185 $1,055,518 $ 522,823 $ 438,657 $ 563,944
Cash flow $ 227,223 $ 147,450 $ 227,950 $ 132,021 $ 115,032 $ 172,586
CFPS $ 0.02 $ 0.01 $ n/r $ n/r $ n/r $ 0.02
Note that revenue and cash flow increase for the second quarter of 97
was a result of increased oil and gas prices.
The company has been at a standstill for 1-1/2 years while the
industry as a whole was growing handsomely. Not a good record for the
company.
The company had a total 1997 cash flow of $0.09/share. Right now, the
company is trading at 9X trailing 12 months cash flow. That's way to
high a multiple for shares in a company with this kind of growth.
Factoring share dilution, the company would have to generate
approximately $5.25 million in revenue to justify the current share
price at 6X 1998 cash flow. That's 2X the revenue generated in 1979.
And, with one quarter already under their belt, that objective looks
quite lofty. On top of that, commodity prices on a year to year basis
will probaly average lower - especially for the current quarter.
And, based upon their record, 6X is to high a multiple to use. A
reasonable multiple is 4X 1998 cash flow for current share price and
that amounts to a share value of $0.60. And, keep in mind, this is
based upon a lofty forecast, which is unlikely to occur.
How are they going to double revenue in 1998?????? Which brings me to
the subject of the Republic of Palau. This has already been a one year
project period and I don't think there has been any real progress to
date. the company & its partners have yet to find a company to farm
out the acreage to. They required a six month extension from August
11th to drill two wells they have committed to. There has been no
word since August regarding their situation with their commitment to
drilling.
In my opinion, this is not a company to jump into at this time. In
regards to share valuaton, if anything - shares are greatly overvalued.
Keep in mind, just one man's opinion.
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