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

To: E_K_S who wrote (45651)	11/23/2011 11:10:22 PM
From: Spekulatius	2 Recommendations Read Replies (1) \| Respond to of 78525

re MHR - my stab at the Midstream business: per 9/20 10Q: Gas gathering and other equipment 110M$. I assume it generated 20M in EBITDA. If you have a willing buyer, he may pay 10x EBITDA= 200M$ for it. Based on these generous assumptions, the midstream assets would be worth 1.5$/share. Generating almost 2x the cost is possible for new gathering assets but it's a rich multiple. So E_K_S numbers for the value of he midstream business are not too far off. The problem is MHR cost of capital, which hovers around 10% the way I look at it. A cost of capital this high makes it hard to build gathering assets in an stockholder accreditive way. Also, selling he business of course will remove an income source for MHR which will have to be accounted for. So, considering that, the net value added is at most 1/2 the gross value or 0.75$/share One thing about MHR that it constantly needs new capital - their debt (including preferred) stands at ~380M$ and their net current assets are negative by about 50M$. This is not good if credit market go into somewhat of a funk. it also does not make a good impression if the CEO is dopey enough to margin his shares to the extend that he receives a margin call. This also happened to Audrey, CHK CEO and my perception is that these guys will bleed their shareholders (via dilution) to get back what they "lost".