The following is an excerpt from February 2, 2010 courtesy of one of the most respected names in the junior sector, fellow Canaccord Investment Advisor and editor of the “Stocktalk - Late Edition” newsletter, David Pescod.
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The chart shows just how beaten up Ithaca Energy, along with many of the other North Sea oil and gas players got hit when it looked like the world was ending in the financial crisis in the last year. Most of the North Sea players survived, but some like Oilexco went into bankruptcy as we all remember.
ITHACA ENERGY (V-IAE) $1.48 +0.04
Ithaca didn’t go without getting absolutely clobbered though as it hit almost ten cents on the dollar from where it had previously been. Now that the world seems to be going back to more normal times, Ithaca, like many of the other players in the North Sea seem to be enjoying much better times.
Yesterday, Ithaca announced some new resource/reserve numbers and suddenly the analysts are responding with higher target prices. One of the most bullish on the story is Octagon’s Warren Verbonac. He writes, “Proved reserves have more than doubled since the Dyas transaction, and Probable reserves are up 2.7 xs. On a year-over-year basis, Proved reserves are up 10% to 16 million barrels equivalent, Probable reserves increased 49% to 21 million barrels equivalent, and Possible reserves are up by 60% to 42 million barrels equivalent.”
Sometimes when you write Possible reserves, that’s the equivalent of “hoped for” and “dreamed of”. But still you have significant agencies doing this kind of work.
Verbonac continues, “The present value of the 37.2 million barrels equivalent of the Proven and Probable reserves, discounted at 10%, is US$768.4 million or $5.00 per share; we estimate that cash in the Company could be worth another $0.30 per share, for an approximate asset value of $5.30 per share.”
Verbonac continues to get excited, writing, “Adding in Possible reserves brings total reserves to 79.2 million barrels, with a present value of US$1.8 billion or $11.45 per share; $11.75 after including an estimate for cash.”
Is one getting carried away here?
There are other analysts following this story; Fraser Mackenzie with a target of $2.50, but I suspect others are going to start taking a look at this story and if these numbers are anywhere correct, we just wonder if Ithaca doesn’t become an obvious takeover candidate.
When we talked to Verbonac the other day, he reminds us that this is not a third world country we are talking about and they are located in one of the best places of the world to be.
He echoes our thoughts that it might become a very attractive takeover target.
Bottom line, Verbonac in his report for Octagon writes, “Clearly, this is one of the most undervalued stocks in the sector. Experience has shown, that over time, stocks will trade to their Proven and Probable asset value – the “hardest” valuation metric.”
Currently Verbonac ups his target from $2.00 to $3.00.