RE: Predictions and thoughts20 Jun 2021 15:57
While all this conjecture regarding drilling in the SWP and the possible farm-in the Bahamas has been most informative it should not detract from the fact that this still remains a company with little or no money of its own. Therefore, at this point in time new and current investors should be concentrating solely on the outcome of the Saffron and Suriname projects as these projects will provide the funding, if successful, for the company’s future development.
With the forth coming Saffron#2 drill nearing completion it may be logical for current investors to re-evaluate their holding and strategy. Most professional analysts use some form of DCF model to evaluate the future share price of a company and those analysts covering the oil industry are no different. In a normal DCF the WACC (weighted average cost of capital) is used as the discount factor for the calculation of the discounted FCFF. The DCF model also uses a terminal value at the end of the excess growth period – usually 10 years. In the NAV model employed by the oil industry the discount rate is a standard 10%. In addition, the terminal value as used in the DCF is omitted and is replaced by calculating the discounted FCFF until the well/field is depleted.
Figure 3 in the Auctus report states the Total Core NAV is 9.7p (post conversion) and the Presentation PDF states the life of the Saffron field is expected to be 15 years. Therefore, in 16 years the intrinsic value of NAV is 9.7*(1.1)^16 = 44.57p using the 10% DCF. Now we can calculate our IRR (internal rate of return). The amount required is 44.57p, the initial lump sum investment is the current share price say 2.8p and this gives an IRR of 18.88% per annum over the 16 years. For those like me that bought at 22.4p (post conversion) it will take 12-13 years to reach breakeven point at this IRR.
The above is for illustrating that the NAV, Target Val, PV or whatever is not a near term valuation. I don’t contest that shareholder over exuberance based on rumour or news could spike the share price over 9.7p but it’s unlikely.
New investors should be aware of the following:
1. The company is led by a BOD’s who are to-date devout under achievers showing little regard for creating shareholder value but more than capable of looking after their own self interests.
2. The annual accounts have been delayed for a further 3 months owing to, allegedly, Covid-19.
I would be interested to know how PI’s will determine if Saffron#2 is a success or not and what data they need to come to their conclusion and over what time period.
Finally, accredited to an unknown comedian, with minor edits ‘I came into this world with nothing and thanks to BPC I still have most of it left.’