my broker flipped me this todaysums up the story well...

my broker flipped me this today
sums up the story well imo...

SPOTTING VALUE IN CHAOS





Catching falling knives in this market can prove fatal, having endured what we have been through in the last 18 months.



“Value” is largely dependent on where we are at within the cycle. If we are at or near the bottom, value can be identified in oversold quality companies. If there is further downside, falling knives can kill off an already sick patient.



Given the unprecedented nature of this worldwide economic crisis, no one really knows where the bottom is. The fact is, we need the 21st century John Maynard Keynes to emerge to write the new economics text book because all those that exist are superseded.



That said, in this current climate there can be only one approach: “Keep It Simple Stupid”.



First, you must identify what Sector/Commodity will recover first when the upstroke begins. Then, select companies with strong assets, strong management, good cash flow, good profitability and strong prospects going forward.



My two picks in the mining sector are Oil &Gas and Gold.



Looking at oil, spot oil prices are down from a peak of US$147/bbl to around US$40/bbl, a drop of about 70% and a 5 year low.



The spot price may well fall in the short term, reflecting depressed demand but, in the longer term, oil prices will probably rise. Exploration has been severely curtailed, major discoveries non-existent and yet the world continues to consume about 80 million barrels of oil per day.



Analysts that support this view are recommending the large companies like Woodside, Santos and Oil Search.



It may also be prudent to look at some of the more reputable and solid smaller companies that have copped a real belting. Maybe that’s where the elusive value lies.



One company that fits that bill is AMADEUS ENERGY (AMU). Current price 29 cents.





WHATS GOOD ABOUT AMU?



AMU is an Oil and Gas Producer with all its operations located ONSHORE within the USA.



The company has reported consistent growth over the last 5 years, has a strong operating

Cashflow, and is profitable.



Points that recommend AMU are:



* Strong operational and technical management both here and in the USA
* A successful business model of growth by acquisition and exploration
* Operating in a country with low political risk and excellent infrastructure
* Very good ground position with an active and ongoing exploration program
* Operating in longlife producing oil and gas fields
* Has a current hedge position to Dec 09 that delivers a minimum of $US55/bbl for

about 60% of AMU’s oil production

* Cashflow and P/E multiples in the low 2’s
* The lower $AUD offsetting lower spot prices for oil and gas



AMU’s December Quarterly (see www.amadeusenergy.com) reports oil production for the

QTR up by 6% to 125,418bbl (av price of $US66.98/bbl) and gas production was 411,416mcf

(down 13% due to workovers) for an av price of $US6.86mcf



Revenue from operations was $US11.2m for the QTR



Debt was $US56.4m down from $US68.9m as at 30/6/08



ANALYSTS REPORTS ON AMU



Three brokers have recently analysed AMU



1. ABN AMRO MORGAN'S 29th January 2009 Analyst Chris Brown



See www.abnamromorgans.com.au Brown says: “AMU’s December quarter production record

demonstrates that the company’s business model is sound even in this low oil and gas price regime”.



He has a target price for AMU of 60 cents.



2. HARTLEYS 22nd November 2008 Analyst David Wall



See www.hartleys.com.au Wall concludes by saying: “AMU has a solid asset base that provides the

Company with low risk, long lived positive cash flow”.



He has a “conservative share price target of 69 cents”



3. SHAW STOCKBROKING 19th November 2008 Analyst Luke Maffei



See www.shawstock.com.au Maffei says” on several metrics, AMU continues to remain undervalued”



Based on his assumptions, he has a target price for AMU at 65 cents





All the best



Rex Turkington