value of amu 10% downside without eden

I investigated what a possible value of AMU would be if the bid from Eden was rejected due to them not meeting its funding deadline.

There seems to be little downside risk from its current trading value of 25 cents per share.

We already know that the share was trading around 22 cents a share well before any takeover bid from Eden was announced.

Based on its latest production figures and using current oil prices in AUD the company would have produce half year revenues of around $14.8million AUD. The half year results to December 2010 showed a profit of $700,000 based on revenues of around $5.8million. There is a possiblilty that the company is positioned for future half year profits of around $2m (takes into account $100k per quarter saved in interest to dent reduction). This would place the company on a earnings yield of 5.3 based on its current capitalisation at 25 cents a share.

Although AMU is a micro stock an earning yield of 5.3% is reasonable for the oil sector. Again the price was justified by the market prior to Edens offer when it was trading around 22 cents a share. Also AMU has production upside capacity.

So even if the Eden offer does not materialise AMU is still reasonable priced at around 22 cents leaving downside of around 10%. I think the market will punish the stock further (probably by 20% or 5 cents to 20 cents)if Eden withdraws but expect the stock to recover up around 22-25 cents shortly after.

I am still of the believe that the Eden deal will go through. Its funny how easier it becomes to find money if the price is right. I thing Eden knows the price is right and therefore I think they will find the money (the oil price has rallied since their takeover offer). The fall in the $AUD to around $1.07 will futher assist with the funding.