new rbs research, page-8

RNI,

I dont think the RBS report mentioned risk with a negative sentiment. "Risk" is a word commonly used in investment finance and is not a bad thing at all.

All investments contain some form of risk - as long as the return from the investment is commensurate of the risk then you should invest (ie if the investment is NPV positive). If yoy want an investment with no risk, or you would get a small return. The aim is to achieve the greatest return, for you're level of risk exposure.

RBS valuation represents the NPV of TXNs future cash flows. What they're saying, is the discount rate currently used in their valuation takes into account the risk (i.e the probability of meeting those expected cash flow projections). At this stage, TXN's valuation is $1.40 for its level of risk but obviously if EFS#3 and EFS#4 are successful, and TXN has 40 other proven drill locations, then the risk is lowered and the likelihood of meeting RBS's cash flow projection is increased. Therefore RBS would utilise a lower discount rate, leading to a higher valuation.

Risk is only bad, if you are exposed to systematic (diversifiable) risk as it means the you're risk-reward is not optimised.