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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jurgis Bekepuris who wrote (38718)	8/8/2010 4:21:04 PM
From: Paul Senior	Read Replies (1) \| Respond to of 78464

FRHLF does not seem undervalued to me on the face of it: enterprise value exceeds nav. Company though owns a lot of land in oil shale plays in which I'm interested. Freehold will eventually lease these out to get royalty payments on oil produced. I'm hoping and expecting that there's a lot of oil there that can be extracted. Rate to unitholders now is C$.14, which annualized is C$1.42, after the current Canadian 15% tax is taken out. C$1.42 is about 9% on a US$15.9 stock price. Royalty streams will continue, albeit cash to unitholders may be less initially after the corporate conversion. Or before, if bod changes distn. amounts. (Company says it's committed to high payout ratio though, and tax changes won't hit until 2012 (if I remember correctly.))

To: Jurgis Bekepuris who wrote (38718)	8/8/2010 6:08:04 PM
From: E_K_S	Read Replies (2) \| Respond to of 78464

Hi Jurgis - The July 2010 McDep report (pg-7-) shows FRHLF with a McDep ratio of 0.89. mcdep.com A McDep ratio of 1.0 signifies "fair" value (ie EV/PV) so one could conclude FRHLF is 11% undervalued but several of the Candian Income Trusts have a McDep ratio below 0.90. Pengrowth Energy Trust (PGH) 0.88 Penn West Energy Trust (PWE) 0.87 Enerplus Resources Fund (ERF) 0.76 Canadian Oil Sands Trust(COSWF) 0.69 For a high yield U.S. company you might want to look at is Hugoton Royalty Trust (HGT). They have a McDep ratio of 0.90 and yield 7.2%. Other U.S. company notables based on a low McDep ratio is Berry Petroleum Company Common (NYSE: BRY) and Whiting Petroleum Corporation C(NYSE: WLL). finance.yahoo.com The article below provides a pretty good description of how they calculate the McDep ratio. There is no explaination in either of the reports as to how the valuation is impacted by a change in the corporate structure but it appears that the Canadian Unit Trusts still sell at a discount to their U.S. corporate equavalent companies. However it is hard to quantify the exact amount. Five Pure Plays in Reawakening Oil and Gas by: Kurt Wulff June 28, 2010 \| about: CRT / DMLP / FRHLF.PK / PBT / SBR seekingalpha.com From the article:"...McDep Ratios range from 0.96 to 1.12. The denominator, Present Value, is a median 13.8 times unlevered cash flow. PV/Ebitda depends on reserve life and whether the resource is natural gas or oil. We attribute the apparent disparity between reserve life and cash flow multiple for DMLP and SBR compared to CRT and PBT to restrictions on operating information available to royalty owners and differing interpretation of reporting rules. Actual volume history paints a more consistent picture. The same considerations apply to FRHLF where we have boosted reported reserves with the addition of probable quantities that Canadian companies provide...." I continue to hold Penn West Energy Trust (PWE) McDep ratio 0.87 and Enerplus Resources Fund (ERF) McDep ratio 0.76. PWE released their earnings last Friday and I plan to buy a few shares Monday as the stock sold off for no apparent reason (to me) based on their report. EKS