As I said there would be no way I would use an npv on a stock like CVI as there are way too many variables involved and it is still in its embrionic stage. What are its likely earnings? I have no idea? A lot of the spec stocks may never even get to that stage.
Like T4P has said they are best applied to mid/large cap stocks that actually have earning streams and some degree of stability.
I've been involved in due diligence work in the energy sector (predominantly electricity) and a scenario npv analysis is what I've worked with.
Always difficult trying to account for variables even for large companies, weather impacts, exchange rates etc. are just some of the factors that can seriously impact on revenues.
Again in the electricity sector you could apply real option theory if you wanted to value something like a generator (as its basically a call option), but pesonally I would rather build the optionality into an npv model.
I applied an npv to SYR, which is a micro cap. basically because if the White Dam acquisition goes ahead there will be revenues and a cashflow stream. In this case I wanted to get an idea of how much the cashflow streams "could" add to the sp. Still many assumptions involved here, but you build a model and play around with the key parameters (Au price, mineable reserves, recovery rates, capital raising assumptions) you can get a very rough range of values to get a feel for whether the share is undervalued or not (also allows you to gain some understanding of where the key sensitivities lie).
Cheers SBC
CVI Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
