Savvy Trades and Investments

[gilead23]

Some thoughts on FSI margins

Figured you might find this useful. I ran a small regression of the last 8 years of opec oil prices against the last 8 years of FSI margins so 2010-2017.

What I see is a pretty strong negative correlation with higher oil prices equaling lower margins. R squared is .64 which is a pretty strong relationship. Not surprising although the effects are modest as oil prices go up or down.

You can use your junior high slope of a line based on that to come up with a rough guess of margins at different oil prices

So basically y = mx + b.

In this case the regression gives me an m of -.131 and a b of 46.8

Running that against various oil prices give you the following margins

 
 oil price	implied margins 
 50	        40.22 
 60	        38.904 
 70	        37.588 
 80	        36.272 
 

So at least based on historical annualized numbers we could reasonably expect margins in the 38% range based 60ish oil. Last quarter was odd because margins were fairly low even with lower oil prices so it may be best to look at annualized numbers. There are also other exogenous factors like China that could create some hinky results but I am hoping with the new higher margin ENB business plus modest oil prices that if you look out over the course of a year we can hope for margins in the 40% range assuming we don't see large moves in oil prices.

Assuming that turns out to be correct and we assume what I think is a very conservative 2019 revenue estimate of 25 million I get

 
 Gross profit: 10 million 
 SGA:           5 million 
 Interest exp  .2 million (not sure if we got the rate yet on that loan) 
 Taxes (30%)    1.5 million 
 Net income     2.8 million 
 

If you assume FD share count of about 12 million I get .24/share for the year. I think the revenue numbers are potentially much higher but margins could be lower and I don't see them getting much past the low 40's but this feels like a pretty conservative guess with some upside.


Unrelated but I don't have PM. As far as your other comment I think the movement predates the other event you describe. It started some time ago and picked up early yesterday with the same pattern we have been seeing for awhile. Possible your theory is correct but I'm betting not.