RE: P/E19 Nov 2018 09:18
So some assumptions need to be made that we currently do not have sight of but let's assume by the time we get to $40 million p.a. income the future income curve from Ntorya will have reached it's peak and we will be looking to maintain at that level or even looking to a future downturn; if so there will be no element of growth for that income so there will be no "premium" for future growth in the PE and there will still be the political risk of producing in Tanzania. There will also be the particular influences of the international and domestic economic factors that apply at the time (perceived Oil and Gas price trends etc).
During the FFD programme whilst we are adding wells, production capability and, hence, income the PE will be trading at a premium; so whilst the income (profit) will be lower the PE ratio is likely to be at a higher multiple as people will be anticipating future growth.
We also have to look at the "P&L" scenario - how much of that $40 million will be seen as "profit"? And profit depends very much on cost of production and how much AEX will be re-investing into other development projects Nyuni, Kiliwani etc. Consequently a O&G producer will typically operate at a higher PE if they have a lower element of "Exploration" expenditure a higher proportion of "Development" expenditure and pay a dividend.
So Drewky, as I said at the top of the post, so much will depend upon things we cannot yet see BUT at a guess I would be inclined to look at a PE at the lower end of the "range" and on a figure of NOT $40 m but maybe $25 m (profit)... So a PE of 20 on a Profit of $25 million would give us a market cap of $500 million or £360 million and an SP of circa 10p. You can of course adjust this figure for differing rates of profitability and it is not inconceivable for the sp to be looking at 12+p if that profitability figure is higher and AEX is not then spending much on development.
Which by the way is the same figure that I gave when months ago you asked what posters believed the SP would be when we get to $40 million a year income.
I must point out though that this totally ignores the impact and influence of possible incomes from Kiliwani North (which is minimal and in decline) and Kiliwani South / Nyuni which may be considerable by the time Ntorya gets to $40 million and even if they are not yet producing the "Forward PE" would anticipate them if they were close enough to production. So these developments may well contribute considerably to the Market Cap in a year or two.
It goes without saying that all of the above is totally in my own opinion but based on some experience....
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