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Strategies & Market Trends : Group Therapy -- Ignore unavailable to you. Want to Upgrade?

To: Duane L. Olson who wrote (4489)	10/11/2003 1:18:04 AM
From: Duane L. Olson	Respond to of 4564

NCN... what would the current cash-on-cash yield be if NCN were not managing the distributions? And if NCN were to offer a stabilized yield consistent with that of high yield bonds? Data: QUOTE: "Petrofund improves distribution stability by re-investing a portion of its cash flow for long-term benefits. In accordance with this policy, Petrofund allocated $25 million to debt reduction and the funding of capital projects for the four quarters ended June 30, 2003. A further $7.5 million will be allocated for these purposes at the end of the third quarter of 2003. Additional amounts are held in reserve to be used for similar purposes or to help cushion the effect of a commodity price downturn on distribution levels. Petrofund's conservative distribution policy is reflected in a 2nd quarter payout ratio of 69%, and 6 and 12 month trailing payout ratios of 56% and 63% respectively." UNQUOTE --- Current actual NCN yield (Yahoo Finance): 13.01 --- NCN yield if the 56% payout ratio were "adjusted" to 100% payout: 23.2% ----NCN yield if the 63% payout ratio were "adjusted" to 100 percent payout: 20.65% Does the earning power which this info reflects justify a somewhat higher price for NCN? Opintion: yes, IF ... the "IF" being "if NCN could be expected to continue earning, CONSISTENTLY, on a basis which would allow for, say, a 20.65% yield on a 100 percent payout, then the price of the trust share should be adjusted upward by the market. How much? -- well, how about using the long term yield on a portfolio of high yield bonds as a guide.... say, in the range of 7% to 9%. On that hypothetical basis, NCN would currently be worth somewhere between 2.29 and 2.95 times the current price. OR a value range of 28.97 to 37.32 vice the current price of 12.65. VERY theoretical and hypothetical....but interesting, no? If the price of natural gas were to stabilize at a level 50% higher than the current market, the (theoretical) value range for NCN becomes 43.45 to 55.98 on a yield basis. Of course this is all theoretical, and could "never" happen, right?.... but it does help establish a different perspective on this neat little energy trust. It gives us something like an absolute limit to the price of the shares if natural gas prices never rise more than 50% from current levels, and earnings stabilize at a level which reflects that NG price rise. And in light of all that, of course, we once again must note our thanks to E-Graphs for recommending NCN at MUCH lower levels.... dlo