reconciling market value with intrinsic value

Some people continually say the market has "got it wrong".

Others, including myself, believe it gets it right. After all, every transaction has a buyer and seller agreeing on the volume and price at a point in time. ESG was last valued at 70c per share. Bananas sell at around $12/kilo in Coles. We may not agree with either of those prices(too cheap, too dear etc.) but that is what the market says they are worth right now.

For a company like ESG all it actually has currently is "potential". Potential access to potential oodles of gas deep underground with potential technology to extract it at potentially inexpensive costs to sell to potential customers in potential market places both domestically and overseas. It currently has negligible actual revenue streams.

Sure we can extrapolate "market" rates, costs etc. from other deals, project those into the future, and then discount them..... to arrive at some sort of NPV range to represent what the underlying intrinsic value of ESG "should" be. There are typical forecasts around for future LNG prices, costs of capital, exchange rates, interest rates etc. which can be used. Some posters here believe ESG is intrinsically worth $4-5 per share, all things considered.

How do we reconcile the two measures? I contend there are two other main discount factors which need to be taken into account:-

1. The 'M' Factor....... meaning Management. Things like basic communication skills, stability, reliability, track record technically/financially, partnering arrangements, political connections, PR profile etc.

2. The 'P' Factor....... meaning Political. This covers a broad spectrum obviously and clearly differs from State to State. My contention is that right now the "P" discount factor is far higher in NSW than in QLD and SA with respect to large resource related projects. It should hopefully come down in coming months/years.

How do you rate M and P currently in respect of ESG?

Let's say ESG management could do a whole lot better than it has been doing by assuming a 50% discount factor for M. Now...... the 70c share could easily become .70/(1-0.5) = $1.40/share if all relevant current info was effectively communicated positively and in a timely manner to the market place.

Let's also say P is a 60% discount because ESG is in NSW with a new government tip-toeing it's way after years of incompetence from the previous government. If we knew the NSW Gov't was totally supportive, would expedite the necessary approvals and get legislation passed though the Upper House then that $1.40 could become 1.40/(1-0.6) = $3.50 per share.

If you believe M is even worse at present, say around 60%, then it suggests a value closer to $4.50 per ESG share which is what some posters have persistently argued.

Just my personal opinion!