VUL (ASX) Calculating The Intrinsic Value Of Vulcan Energy Resources Limited

Originally posted by cmonaussie: ↑

Hi Sura ... just to circle back on this. My concern isn't that you saw my post as an attempt to pump the stock (which it is certainly not) but that the notion of "intrinsic value" might be used as a "basis multiple" for valuing Vulcan.

I think VUL is far from being valued on a multiple of its "intrinsic value" and bears no resemblance to tech stocks (having spent my working life in S&M of software companies).

What I really wanted to too was to get poster's attention and looking at the "Vulcan's value". The thread started with a Simply Wall Street valuation using DCFE to put forth a number as "Fair Value" - note the different language. That requires a lot of assumptions to be made on ASP and Cost and discount rate and more.

And to a large extent I firmly believe that a stocks "value" ultimately lies in the present value of its future cash flows to equity shareholders. But that requires a crystal ball and firm belief that your future estimates are correct.

So as an alternative I was looked for another method to prescribe what the "intrinsic value" might be and for that I used what Nobian was prepared to pay now (term sheet good till 31 Dec 2023) for a slice of the project based on the the DFS. Whether that is fair and reasonable is up to the reader. There is no attempt to prescribe any value of VUL's "intellectual property" (i.e. VULSORB).

IF, and that's a big IF, one accepts the DFS and its determination of NPV as fair and reasonable - then what I provided doesn't need a crystal ball - just a calculator. And just on those calculations either Nobian is overpaying or Vulcan is undervalued - those are the only 2 outcomes.

IF however, we delve a little more deeply we might be inclined to question the "structure" of the economics within the DFS to challenge whether that look through valuation I calculated was "fair and reasonable".

For example: The DFS has neatly packaged the economics into SPV1 and SPV2 and Nobian is buying 50% of SPV2 the CLP. From the DFS the Total Capex for SPV2 is EUR322M and the annualized revenue is EUR616M. SPV1 has Capex of EUR1,174M and annual revenue of EUR537M. So just on the surface I can make this assertion:
SPV1: Capital Intensity Ratio = TA/TR = 1174/537 = 2.186 (i.e $2.186M of Capital to get recurring $537M revenue annually)
SPV2: Capital Intensity Ratio = TA/TR = 322/616 = 0.522 (i.e $0.522M of Capital to get recurring $616M revenue annually).
This ratio is looking at how much capital is needed to get $1 revenue each year ... and revenue is not profit or operating cash flow. Keep that in mind

You don't need to be Einstein to see that SPV2 appears to offer a better return. But like most things the devil is always in the details. For VUL it is on both sides of SPV1 and SPV2 - and so benefits as the integrated processor. Nobian is only on the SPV2 (the CLP) which has to purchase Lithium Choride from SPV1 (and the owners of that VUL & partner(s) to be named would want a market price). SPV1, with utility like margins and return from Geothermal operations will appeal to a different buyer risk/reward appetite.

All that above discussion is simply to draw attention to whether the sale of 11% of the project (based on NPV) for ~160M is a fair and reasonable way of looking at the projects value overall.

Net Net ... there are many ways of valuing and risking the project ... so while one method suggests AUD$13/sh, as an investor you need to decide how it stacks up to your own investing criteria.

For me ... VUL appears to offer good value at the market price it is being offered at.

Expand

thanks @cmonaussie for the explanation, there was never a argument that you or the SWS or anyone did the right calculation on intrinsic value. I get there are many ways you can skin a cat.
I too agreed leaving aside the whatever the intrinsic value anyone give to VUL it offers really good value atm.
I just go one step further that looking at basics, it appears that VUL sp is currently undervalued considering Cash position $240 mil, vulsorb,vercana, Insheim, landau leop, offtakes etc..
also on webinar Francis he reassured me what i believed about offtakes, which once i mentioned here in vul thread, by saying that fluctuations of lithium price is not affecting vul as they have fixed offtakes in place. There are many not valued in sp hence yea, its offers very good value atm..
future wil decide how big or small vulcan going to be. But this very talented team and good management is more and more likely to achieve that than not..

No.	Vol.	Price($)
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Price($)	Vol.	No.
4.570	83	1
4.580	100	1
4.610	389	1
4.660	87	1
4.670	10000	1

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(20min delay)
Last $4.54		Change -0.110(2.37%)		Mkt cap ! $854.3M

Open	High	Low	Value	Volume
$4.68	$4.81	$4.51	$2.401M	515.7K

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