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Post on RB on Feb. 24:
There are no warrants or options out on NWAUstock. Furthermore, there is only one share class, 16 M shares outstanding and everyone possesses the exact same shareholder rights. That said, NWAU will issue employee stock options in the near future, assuming the shareholders approve it. They deserve it, it will be public information and if people don't agree with it they can acquire 8,000,001 shares and vote no. I have no problem with it, a properly structured stock option incentive plan will make the employees a bit more loyal and work a bit harder everyday.
Perhaps this explains the increase in the sharecount to 24 million?
It matters a whole lot. If earnings per share are based on a sharecount of 16 million earnings per share would be almost half that number if the sharecount is 30 million.
FinANCIAL REVENUE
"By the end of 2005 NowAuto expects to have $10 million in loans receiving 29.99% interest. This represents annualized finance revenue of nearly $2,400,000 after down payment."
The above is from the company website. At the end of the year annualised finance revenue is expected to be at a level of $ 600,000 per quarter. Since sales in the second quarter are way below what must have been assumed to be sales at the end of the year and since those revenues grow and grow from quarter to quarter the implication is that finance revenue will have been much lower than $ 600,000 during the second quarter.
Your Navicom and finance numbers seem much too high. Navicom has sold a lot less than 1000 units per month in the past for instance. It seems getting increasingly clear to me that the numbers don't add up as far as revenues are concerned.
I assume subprime loan revenue will grow fairly slowly and only become a major source of revenue at some time in the future. Suburst does not generate this sort of revenue and Sunburst represents most cars sold according to one poster.
mnfats
Where do you get the Sunburst numbers from? If they are correct it seems extremely difficult to understand the revenue numbers.
The point is that we are not told the sharecount that the earnings are based on - the lower sharecount the higher earnings per share. There are various ways to calculate the sharecount. The normal way is the average number of shares during the period referred to I think.
If you read RB you will see a poster who finds that the numbers don't add up. Revenues seem to suggest a much higher average sales price for the cars than we have reason to believe would be the case since the cars sold by the company recently acquired are supposed to be sold at a low price on average.
I think they gave guidance for the second quarter and that it was in the range 5 - 6 cents per share. But I think that was on the basis of a sharecount of 16 million.
The point is that my calculation was based on the assumption that the company has no expenses apart from the cost of buying the new cars. This is of course not the case. Therefore I find it hard to see 6 cents earnings per share based on 30 million shares outstanding.
Revenues are likely to be increased but it should be taken into account that the acquistion largely explains the increase from the previous quarter and that the acquisition represents a mature company that does not grow fast. Therefore it may be premature to expect a big growth in revenue next quarter.
Revenue numbers were better than the number of cars sold in June and July would suggest. It is impossible to know what profits were since there is no sharecount mentioned that the very different calculations of earnings per share are based on. Assuming a profit margin of 15%, which I think is the one projected in the past, earnings per share would seem to be about 3, assuming a sharecount of about 30 million.
If revenues are $ 6 million and the cars are sold at twice the price they were bought at gross profits would be $ 3 million. Assuming a tax charge of 33% after-tax profits would be $ 2 million or about 7 cents per share assuming a sharecount of 30 million. This is assuming no expenses at all apart from what the used cars cost!! This suggests to me that the numbers for earnings per share may be (far) too flattering.
What seems pretty unique today is that for hours there appear only to be buys.
I do agree that if the shares were sold at a price of $ 2 per share for instance there would be little reason for the stock price to fall. But that was hardly the case. If a stock is considered undervalued it is usually not a good idea to sell shares unless that is the only alterative to finance expansion of whatever.
Cheap?
Some shallow stock speculators might think that NWAU is cheap now that the price is down by almost 50 percent since the high of $ 2. That would be a rash and foundless deduction. In fact the sharecount fully diluted is up by almost 100% compared with what was assumed when the stock price was $ 2. Hence the shares are almost as expensive now as then in relation to earnings per share.
What is alarming is the explosive sharecount. In November 2004 the sharecount was 10 million. Now it has almost tripled. Even if the company were doing well the explosive sharecount would dilute earnings per share a lot. This fact does not tally well with the impression the company spokesman communicated as recently as May this year. Here is an excerpt: "There is still only 16 million plus shares total issued.
The money man behind Now Auto is Michael Fisher. Mr. Fisher is one of the
founders of Now Auto and is a major stock holder.
Now Auto is well financed and doesn't need to sell stock to raise money."
As far as revenues and profits are concerned, the company claims to sell its cars at an average price of $ 7,000. During June and July the company sold an average of about 200 cars per month. This would seem to bring in about $ 1.4 million per month these months. Annually, this level of sales would add up to about $ 17 million. This is after the major acquisition earlier this year. Hence it would seem that sales during this summer may be an average for the year at best. Assuming an average profit margin of 15%, which I think may be too high since revenues seem to lag substantially behind projections, profits would be about $ 2.5 million. This would be a little less than 10 cents per share. To me these seem to be pretty optimistic projections. I no longer trust the projections of Mr Miller, for a number of reasons. A p/e of 10 is not very cheap for a Bulletin Board company.
I think it likely that earnings per share this year will be less than 10 cents. It is hardly realistic to assume that the profit margin will be the same if revenues are half they were expected to be some months ago. There are after all some fixed costs. Hence the profit margin may be a lot slimmer than projected by management previously.
It would be normal for a company like Navicom to operate at a loss at this early stage in its development.
We don't know if it is a conservative number or wishful thinking. After the three for one reverse split those earnings amount to about 25 cents for the present shares. There is s previous projection of about 33 to 38 cents for this year. Moreover, are those earnings allowing for a normal tax level or is it pretax?
It was quoted in Upstream about three weeks ago I think. It varied as far as the two most attractive blocks are concerned. Thus rumor led to a rise in the stock price on a Thursday if I remember correctly but the stock price retreated afterwards.
I bit of thinking
I have been away on vacation for three weeks without access to Internet. I had expected the stock price to move to let's say 50 cents as a result of reduced uncertainty about the financing of the drilling. It appears that the terms more than balanced the reduced uncertainty as the stock price is marginally down.
Perhaps the stock price is where it should be? I will make an attempt at being the devil's advocate. The fact that ERHE had to give away about 50% of its interest to be carried means a valuation of those blocks, as it must be possible to have a resonably good idea about how much it will cost to do the drilling. My guess is that EHHE may be fully priced now on that sort of valuation.
When proved oil in the ground is worth about 10 times as much as the sort of estimate of possible oil that ERHE now has (if I remember correctly)the implication is that the chance of finding the oil that is expected to be there is not much better that 10%. If it had been a lot better that ratio would have been very different I think. Therefore we can hardly expect the stock price to move very high before the reserves that are expected to be there are proved. That can only happen successfully over a period of years.
The current price of crude is of little relevance to where the stock price should be. What matters is what crude will fetch when ERHE sells it over a period of years. Biofuels can according to an article in Newsweek now be produced at $ 25 per barrel. The general expectation is that the price of crude will be back to lets say half its current price in a few years. That is what matters.
Finally I think the assets ERHE has in Sao Tome has little current value as that (rogue?) state cannot be expected to honor its commitments when it can sell it in the future to China.
Can anybody counter the above views in a convincing way?
(By the way, despite the above I have put almost my entire net worth in ERHE)
Wall
This may well be a good deal in view of what could realistically be expected. But you should remember that these were the two most attractive blocks. Therefore a lot more will have to be given away in the other blocks to be carried. Therefore it was so much nonsense to make big calculations which did not allow for what has now happened. The value of this rights in Sao Tome waters is in my view low for the simple reasons that that country can hardly be expected to honor its obligations. Even the US does not do so when that is deemed to suit its best interest.
The new facts show that there was no reason at all to expect the stock price to go to 10 times what it currently is. Our partners have put a valuation of our stakes by implication. To arrive at that valuation it is only necessary to arrive at an estimate what it will cost to finance our stakes of 12 and 18%. I think that valuation results in a market cap that is lower than what it currently is. This is the only real valuation of our assets that we have at this stage.
Even if the commentators here have lived in a world of wishful thinking this does not exclude the possibility that the stock price may be up by a factor of 10 or more if big finds are made in those two blocks, since oil that is proved is a lot more valuble than the possibility of finding oil. Thus there is still hope that this may be an excellent investment. It now appears that it will not take that long before drilling commences, which is also a positive factor.
Good deal?
Did the calculators allow for this very substantial dilution when arriving at the proper stock price at this stage? To me this looks like a good deal if the companies that drill for oil have to drill a lot of wells to find it and a poor deal if it is found straight away. A well costs after all about 10% of ERHE's market cap if the cost of one well is $ 30 - 35 million.
E-mail from Ms Buks
"Thank you for taking the time to correspond with me about the company's presence on the BB. I am happy to pass it along to management on your behalf. Additionally, be on the lookout for a company update, which may help to answer some of your questions."
My view is that to obtain a proper valuation we should try move to a serious exchange - NASDAQ - as soon as possible. We need long-term investors and institutions as shareholders rather than short-term traders the way I see it.
Buying too. I bought about 120,000 shares yesterday and today even if I think this is a high-risk proposition. My reason for switching horses is that the alternative investment presented negative news. I did very well selling 30,000 shares in ERHE some weeks ago at 48,5 cents and buying shares in another company at $ 1.41. Those shares were sold at $ 1.82 and shares in ERHC repurchased at 40 cents. In percentage terms this was financially rewarding in view of the feew weeks between the transactions.
Spec
I did not say that I believe there is no oil. My point is that so far we don't know if there is commercial oil in these blocks. My guess is that there is, but we should not take for granted that there is.
"Perhpas because ERHC holds control of billions of barrels of the sweet stuff that meets the US energy plans needs?????"
You seem to forget that no oil has been found yet. While we hope that there is a lot of oil to be found there might be none. Therefore it false to state that ERHC controls billions of barrels of crude - it controls no oil at this stage. It may be different in one year.
Why not face facts?
The fact is that the share price has been sliding. There reason is of course that the sellers have been on the offensive. The market-makers reflect the orders that they receive. It seems most likely that the market-makers have not increased either their long or short positions substantially. They rarely do.
Because of the above the interesting question seems to be to be why thare have been so many shares on offer and only buyers at lower and lower prices. There have been some convincing explanations as far as the former is concerned. Some have been over-extended, some have lots of shares at very low prices and some are short-termers who don't expect much to happen in the near future. Never tak a falling knife it is advised. Those who have bought shares recently have all losses. Why buy shares in such a situation unless you want to buy millions and millions of shares? Nobody seems to want millions and millions of shares.
Some seem to be dumping shares into the news. 3 million traded and the price is down. This repeats an old pattern, does it not?
I must not have made my point well. I did not refer to Devon buying a stake in ERHE. My point was meant to be that if these prospects looked very attractive it would be financially advantageous to have even a small stake in the relevant blocks - even more attractive than having a big stake in a block that was not very attractive.
If Devon had purchased a lot of shares that it is now selling it would seem this suggests that their view that it is not likely to be a very good investment? Who in their right mind would sell shares that are expected go up by a factor of 10 or more before long?
Does ERHE have reservers of 4 billion barrels? So far no drilling has tanken place an nil reserves have been established. Even so the market cap is in excess of $ 300 million which is hardly a pittance. My guess is that ERHE will be a good investment. Therefore I currently own 17,000 shares. But we should face facts - it cannot be taken for granted that a lot of crude will be found. Hence the current stock price is not as absurd as some seem to think.
If Mr Kelly does not get 100 million shares Mr Cox and Mr Berman have options for 70 million? Is not that so?
I do comprehend from one point of view it does not matter in the sense thet it will have no objective effect on the efforts to find crude. If there is a lot of oil in these blocks it would even be an advantage if the stakes of the other partners are increased. But this was not my point. My point is the assessment of Devon which may be good or bad. It suggests that these blocks are not no-brainers.
Is it good that one of the partners does not deem it to be in its interest to retain its share of the block? That seems strange reasoning to me. Normally the implication would be that Devon does not consider the relevant blocks very attractive. A small stake in a very valuable block is normally worth taking up I think.
Mr Kelly's sins
Although it is not stated in so many words my guess is that he arranged some illicit personal kickbacks with his large customer and that this money was not taxed. If this was more or less forced on this customer it is no wonder that he was unhappy about it. If this guess is correct Mr Kelly was a liability in relation to this customer and to the company in that potential income was siphoned off illegally.
I now suspect that this profile is very wrong.
I think you make a good point. Posters here seem to take it for granted that massive oil finds will be made. Although the chance of that happening may be good it should hardly been taken for granted.
If he is in control it may not matter much what shareholders think? The lower the price goes the more shares he can buy on the cheap.
This is from bullwriter om RB
Financing? It's possible Chrome or another financier are pushing the price down to get more favorable terms for a funding. i.e. more shares and warrants for a given amount invested. In other words, they naked short via an offshore dealer then loan the proceeds back to the company.
This is from bullwriter om RB
Financing? It's possible Chrome or another financier are pushing the price down to get more favorable terms for a funding. i.e. more shares and warrants for a given amount invested. In other words, they naked short via an offshore dealer then loan the proceeds back to the company.
Remember it may be in the interest of Mr Offor for the price to fall as low as possible so that he can provide more money at a low stock price - maximum dilution is in his advantage as long has he provides more money to get shares on the cheap as some time ago.
If the price goes still lower, which may or may not happen, it will be wise to sell now to buy back cheaper later.
Clare
I can't sell any more shares since I have sold all I own - at about twice the current stock price.