I have just been listening to Steve Cohen at Sohn. He sees a...

I have just been listening to Steve Cohen at Sohn. He sees a side-ways market from here, having made extraordinary returns for a number of years.

He started SAC in 1992 with $20m applying systematic strategies. Today, Point72 (as it became in 2018) runs ~$200bn for 5 clients (including his money) and was up over 50% last year. He has given away over $1 billion.

From recent 13F, the firm currently has hardly any exposure to Energy (0.7%), heavy exposure to IT. Why? Because that’s where the most money is being made.

S&P500 weighting for Energy is 5%, the lowest level in over 40 years. At the end of the 70s, Energy had the largest weighting in S&P500 at 29%. S&P 500 = 70% of MSCI ACWI. Weightings determine investment flows.

TBN is not at all in focus for anyone but high risk taking smaller investors or the likes of Sheffield and his mates or contrarians like Baupost and HITE. For now. We all know that. This is a venture capital investment with a low liquidity trading facility.

One of the most read books by Cohen’s team, according to their head of IPD, is “Expectations Investing: Reading Stock Prices for Better Returns” by Alfred Rappaport and Michael J. Mauboussin. It takes a novel approach to equity valuation that shifts the focus from traditional forecasting to interpreting market expectations embedded in stock prices.

This also fits with Stan Druckenmiller’s approach – focus on what is likely to be the outcome in 12-18 months, not now. Ditto John Templeton - it’s too late when you can see the light at the end of the tunnel - it’s already priced in.

Core Concept: Reverse-Engineering Market Expectations

Rather than projecting a company’s future cash flows to estimate its intrinsic value, Rappaport advocates for starting with the current stock price and deducing the performance expectations it reflects. This method, known as “reverse discounted cash flow (DCF),” involves analysing the assumptions the market has made about a company’s future performance based on its current valuation.

Key Components of the Framework

1. Reverse DCF Analysis: This technique involves working backward from the current stock price to infer the cash flow expectations the market has priced in. By understanding these expectations, investors can assess whether they are reasonable or likely to change.
2. Expectations Infrastructure: The authors introduce a framework that connects a company’s operational drivers—such as sales growth, cost structures, and investment levels—to its financial outcomes. This linkage helps in understanding how changes in business fundamentals can lead to revisions in market expectations.
3. Strategic and Financial Analysis: Beyond quantitative metrics, the book emphasises the importance of qualitative factors like competitive positioning and management decisions. By integrating strategic analysis with financial modeling, investors can better anticipate shifts in market expectations.

So let’s try that for TBN.

Application of Expectations Investing to TBN

1. Start with Current Market Valuation

• Current share price: ~US$17.74 (let’s take the PIPE price)
• Post-raise share count: ~14.1 million (est. based on previous filings + 3.1M PIPE) = Implied market cap: ~US$250 million
• Tamboran is pre-revenue with no current production; first gas is targeted mid-2026

2. Reverse-Engineer the Embedded Expectations

Let’s assess what level of future cash flows the market must be expecting to justify this ~$250M valuation.

From Hannam & Partners’ 14 May 2025 note, for example:

• Phase 1 NAV (risked): US$135 million (19 MMcf/d net)
• Phase 2 NAV (unrisked): US$2.6 billion (TBN’s 58% WI)
• Risked total NAV (incl. dilution): US$83/share → US$1.4 billion total firm valuation

The actual market cap (~US$250M) reflects only ~18% of Hannam’s risked NAV. That implies the market is:

• Heavily discounting execution and timing risks
• Sceptical of capital intensity, regulatory hurdles, or gas market pricing
• Underweighting Tamboran’s strategic position in a constrained East Coast gas market

3. Expectations Gap

Market price implies only partial success of Phase 1, and minimal value from Phase 2/LNG.

• Current price likely bakes in IP30 of <10 MMcf/d, limited/no flow from SS-2H/3H
• Assumes delayed or stalled FID on APA pipeline and remaining Phase 1 drillings and tie-in
• Minimal optionality value attributed to farm-ins re Phase 2 development, extended Phase 1 data centre offtakes or LNG

Strategic Interpretation for Investors

If you believe:

• SS-2H ST1 will deliver >18 MMcf/d IP30 (as guided)
• FID by 2026 for Phase 1
• Gas prices stay firm or rise due to East Coast shortfalls
• Tamboran’s execution continues to mirror U.S. shale efficiency

Then the market is underpricing Tamboran and it may present a high-upside asymmetric opportunity.

But if:

• Flow rates disappoint
• FID is delayed beyond 2026
• Political or ESG risks disrupt development

Then today’s price may already reflect a fair-to-optimistic outcome.