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Gold/Mining/Energy : Canadian Oil & Gas Companies -- Ignore unavailable to you. Want to Upgrade?

To: SofaSpud who wrote (4792)	3/6/1998 7:38:00 PM
From: Kerm Yerman	Respond to of 24921

David / Merit Merit's debt situation would scare me off. Of course, I'm thinking of the current price as an entry point. Let's look at risk vs reward. With the high debt, I would figure a 12-month price target of 6X 1998 cash flow is more than reasonable. That establishes a price objective of $6.60, only $0.75 from the current level. On the downside, there is a great amount of risk. High debt, coupled with growth via acquisition, would bother me -- much more than if growth was from internal projects. I see it as risk outweighing reward and would look elsewhere. Now, if I were a current shareholder, the situation somewhat changes. I would want to see their forecast on a quarter to quarter basis. I would continue to hold shares as long as this forecast is realized. Keep in mind, the only negative is the debt. If their game plan was to reduce the debt multiple to 1.5X forward cash flow by year end, along with meeting projected growth in production and reserves, that would encourage me to hold my shares. Remember, they don't have to pay down debt to get to 1.5X forward cash flow. Increasing cash flow in 1999 could also do the trick. Bottom line is this. Considering an initial purchase, I would not buy shares at current price. If I was a current shareholder, I would not accumulate shares to increase my position. However, I would not sell my shares if I had a forecast showing projected production and cash flow. I would hold shares and monitor company progress vs forecast on a quarter to quarter basis. If I were unable to secure a forecast, I would probably sell on good news - such as the first quarter report.