my broker just flipped this thru to me Hartleys have commenced...

my broker just flipped this thru to me
Hartleys have commenced coverage on AMU with a BUY recomendation
have inclided the summary below;

Amadeus Energy Limited Buy

Under the Radar - Cashflow Positive, Strong Reserves and Large Upside



Hartleys initiates coverage on Amadeus Energy Limited (“Amadeus”, “AMU”, “Company”) with a Buy recommendation. The Company has consistently reported earnings, production and reserves growth for the past 5 years but has dropped off the radar of most investors.

Amadeus’ operations are located onshore USA, with current production of 2,150 barrels of oil equivalent per day from 2P reserves of 14.4 million barrels of oil equivalent (72% oil). In FY2008, Amadeus generated $30m in operating cashflow.

AMU has a diverse portfolio of low risk production assets combined with medium to high risk exploration prospects. Over 50% of planned FY2009 expenditure of US$25m will be focused on high risk / return exploration, with the remainder targeted at incrementally increasing existing production and reserves through low-medium risk activity. All exploration spend is funded from free positive cash flow. The potential upside from the FY2009 exploration program is in excess of 57cps.

Recently, Amadeus has taken advantage of the weakness in equity markets through a share buy-back program. The Company has also reduced its debt position by 26% since 2007 and has a short term hedge book in place, which is now in the money. We rate Amadeus Energy Limited as a Buy.

Investment Highlights

· Attractive FY08 Multiples – Cash Flow 2.6X, P/E 2.3X – Amadeus’ multiples, at current prices, are forecast to be strong for FY09 and beyond due to the long lived nature of its assets and its strong reserve position. This does not include any upside from drilling success, which historically has averaged > 75%.

· EV/2P < $10 per Barrel of Oil Equivalent – AMU’s enterprise value to 2P reserve ratio is well below our average estimate for its peers of $14 per barrel of oil equivalent. Significantly, Amadeus has steady production, is located in a stable and attractive fiscal regime and most of its reserves are oil. We believe that these factors should command a premium to its peers, not a discount.

· Debt US$56m, 0.35mmbbl Hedged @ US$55 – We believe that AMU’s share price has been held back due to negative sentiment related to its debt level and hedging policy. In our opinion, this negative sentiment is unfounded, as the Company has a strong relationship with Wells Fargo (the provider of the debt), which values its assets at 3-5X its debt levels (depending on oil price assumptions). The hedges represent ~65% of forecast oil production until December 2009 and are in the money at
· Exploration / Appraisal Potential > 175cps – The estimated unrisked net recoverable volumes from current exploration and appraisal prospects on AMU’s 250,000 gross acres is 5.8 million barrels of oil and 63 billion cubic feet of gas, which could be worth 176cps for the Company. The 2008/2009 exploration program is targeting 2 million barrels of oil and 22 billion cubic feet of gas, potentially worth 57cps to AMU.

· Management Deserve Kudos for Strong Track Record – Many ASX listed companies have failed to achieve success in the US ; however, Amadeus has increased EBITDA by over 600% in the past five years. Its share price has only increased 84% over the same period. Amadeus has a technically strong US based team, with significant operational and exploration experience, and has aligned itself with quality operators. This, combined with the commercial strength of its Australian management, is a key differentiator that has enabled the Company to succeed where others have not.