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SSN samson oil & gas limited

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2,976 Posts.

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20/11/16

11:08

Post #: 20744768
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Originally posted by cmonaussie ↑

Been raised a few times so this post is going to try and discuss “value” – not the value of SSN share price (the market decides that everyday) but the value of the enterprise (or Firm).

Right away someone might say well that is simple – value of the enterprise is just the Enterprise Value (EV) and is computed as:

Value of Enterprise = Value of Equity + (net) Value of Debt - or restated
Value of Equity = Value of Enterprise – (net) Value of Debt

Now Value of Equity may not be as simple as it sounds and while the first answer it the number of issued shares x current price of a share, I would say that equals the Market Capitalization or the Market Value of the Equity. Not the same thing.

When responding to @alacrity I mentioned an “Anchor Value” concept, which can be stated as

Value (anything) = Anchor Value +/- Extra Value; and then restating as
Value (anything) = Minimum True Value + Speculative Value

So, what is the Minimum True Value (anything)? As it relates to the “Firm”, we can go to the Statement of Accounts to start.

Since we began with “Value of Equity”, we’ll go to the balance sheet.
Shareholder Equity = Assets – Liabilities (stunningly simple)

The 10Q for Sep 30, 2016 reports this number as $4,635,840 or US$0.288/share
The 10Q for Jun 30, 2016 reports this number as $5,191,473 or US$0.323/share
Notice that the “Minimum True Value of Equity” shrank by about $555K (or 10%)

I will use as the “Anchor Value of Equity” the Shareholders Equity as stated on the balance sheet. This is also the number used in Finance for computing ratios such as Debt/Equity ratio (which for SSN prior to payback would be have been ~$35M/$5M or 7x … not going to make a financier comfortable seeing that debt and equity as sharing the risk).

If,
Value of Equity = Anchoring Accounting Value of Equity +/- Speculative Value of Equity,
then this could be restated as:

Speculative Value of Equity = Market Value of Equity – Anchoring Value of Equity

SSN stock closed at UD$0.72 cents on Sep 30.
SVE (Sep 30) = (US$0.72 x 16,079,273) - US$4,635,840
SVE (Sep 30) = US$11,577,077 – US$4,635,840
SVE (Sep 30) = US$6,941,237 or US$0.432/share
This SVE could also be thought of as the “Value Add” to the Anchoring Value

We could also run the same set of numbers for Jun 30 and it would come out as
SSN stock closed at UD$0.71 cents on Jun 30.
SVE (Jun 30) = (US$0.71 x 16,079,273) - US$5,191,473
SVE (Jun 30) = US$11,416,284 – US$5,191,473
SVE (Jun 30) = US$6,224,811 or US$0.387/share

What is that telling you? Firstly, the Minimum True Value has reduced but secondly, that the Speculative Value of Equity has INCREASED.

Speculative Value is anticipatory or realizing something beforehand – and for any company it is based on the future payoffs from “Investing Activities” (look to Consolidated Statement of Cash Flows), using the moneys contributed to the Firm from “Financing Activities” by performance of “Operating Activities”.

In SSN’s case, IMO the reason why speculative value has gone up is because that sales of product from operating activities is beginning to show the value anticipated from SSN investing activities (i.e. the acquisition of Foreman Butte and the sale North Stockyard).

I’ll leave the second aspect of (simple) valuation – based on NAV for another time. This was simply to illustrate that while the SP has not moved, the anticipated value has moved up.

If you had to be concerned about something it would be the increase in interest expense (but that will head lower now that NS is sold and debt back to ~$24M from $35M), uncertainty in production profile and just the overall sales price. Good things now are that most of the impairments are done and dusted so the DDA is a lot lower & LOE appears to be heading lower with SSN operating FB.

GFTA

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Great post, thanks @cmonaussie

Just one thing you said in your post in the last paragraph our debt is now been lowered to $24M, did you mean $19M as per the debt facility annoucment from SSN

"Following the closing of the North Stockyard sale, Samson’s outstanding debt has been reduced to $19 million and Mutual of Omaha Bank has increased the company’s borrowing base to $20 million"

Your equations make good reading.

SSN Price at posting: 0.5¢ Sentiment: Buy Disclosure: Held
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