XAO (ASX) Short Term Trading Weekend Lounge: 23-25th Feb

Originally posted by jas626 ↑

this is just a example of how I work out true value for a company, and if said company is trading at fair value or well under that.
BRK is this example

if you factor in the current income being produced of $2.5 million AUS a year
and you divide the current MC ( 15 million) by that you get a PE ratio of 6.
a PE ratio of most incoming producing company's is around 20, anything under 10 is
considered extremely cheap.

but the thing is most company's that are producing a income are service based and have no real hard assets for the company, most are leasing buildings and rely on a service for income exchange.

the great thing about BRK is that not only is it now producing a income but also have hard assets in land that have more than tripled in value since they have purchased them.

so then what if you combine BRK land value by their income value?

so if you combine the two very conservative numbers.
land value of (1780 acres x 16k an acre = 28 million)
then you add a income PE ratio value of 6 (2.5 million x 6 = 15 million)

you would get a combined value of income and hard assets for BRK of 43 million
or a SP of around 6 cents

now if you take the potential upside into account maintaining the same conservative approach and the same acre amount but giving the current true value of 19k per acre and anticipating the 300% increase in wells to come, from 300 barrels a day to 1000 barrels a day you get a much higher valuation for BRK
you get a increase from 2 million USD to 6.6 million USD or (8.5 million AUS)

- Land value 1780 acres x 19k = 33 million
- income value, using PE of 6 again
8.5 million x PE of 6 = 51 million

total 84 million combined value or MC, again very conservative numbers, as one would expect a increase of acreage held ( BRK recently increase their acreage 500 acres in two months)
and increase in land value, also a PE of 6 is very low, were a PE of 20 is the standard practice imo.

if you use optimistic numbers you get into some very big numbers, (14 bagger)
- land value, 2000 acres @ 20k an acre = 40 million
- income value, 8.5 million using a common PE ratio of 20
= 170 million
total value 210 million MC

longer term it could get even better imagine a land value of 100k an acre and increase production of 1500 barrels a day, mind blowing figures.

# just some raw figures guys showing the massive upside here, feel free to comment or improve on my calculations.

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Hi jas626

It has been a long time since I last dabbled in oilers. I had a quick look at BRK ... just a fast skim.

imo... the assets owned or controlled are not the best guide to intrinsic value. Sure ... if the company decides to liquidate land holdings [or use them as collateral for loans/bonds] then that cash is valuable, but in the absence of that the assets can be viewed as sunk costs which are non performing. For a producing oiler the essentials are cash flow, the ability to service debts, the costs of discovery [drilling... which frequently has a high failure rate], completion rates, production numbers and the associated revenue return and most importantly depletion rates.

The couple of ann's I opened were about 'initial' production rates... which are often as good as it gets and sometimes the depletion of the well can be startlingly rapid. The only reliable guide to the value of the company is the record of the monthly production taken over long time frames....imo.

Like I say ... just did a quick scan but the impression I formed is they are operating in brownfields production areas... such fields can often be purchased fairly cheaply because all of the low risk oil has been extracted... the success of the play will usually depend upon the new operator taking bigger financial risks looking for oil deeper down... sometimes works out sometimes not.