China North East Petroleum Holdings, Ltd.(fka CNEP)

[Vasco da Gama]

share price should approach $20 (2010)

http://seekingalpha.com/article/75660-china-north-east-petroleum-strong-growth-clear-visibility?source=yahoo

China North East Petroleum: Strong Growth, Clear Visibility
by: Atticvs Research posted on: May 05, 2008 | about stocks: CNEH.OB Font Size: PrintEmail
Having recently secured $15 million debenture financing, plus an additional $13 million equity warrants attached thereto, China North East Petroleum (CNEH.OB) has embarked on a path of demonstrably strong growth set to last a number of years.

Stable Business Model

CNEH possesses oil acreage with total reserves of 75m barrels of which they anticipate extracting about 35%, being approx. 26m bbls, over its useful life. As of December 31, 2007 the company had 157 oil wells and has instigated a multi-year program to boost this to 675. Substantial growth in sales and profits will come directly from this increase in well numbers. This will be complimented by CNEH using more up-to-date technologies in oil extraction, thus improving output and accelerating profitability.

Sustainable Strength

The recent $15m debenture financing, plus warrants, provides the company with sufficient cash to allow it to complete its entire drilling program by 2010 whilst maintaining strong cash balances at all times. After the drilling program is complete CNEH will generate large cash surpluses year after year.

Stable Business Model + Sustainable Strength = Strong Growth, Clear Visibility

Having already engaged the services of a well driller and commenced drilling, the combined effect of CNEH’s generous financing package plus the multi-year drilling program sets it on a path of exponential growth in sales and EPS for years 2008, 2009 and 2010 with good visibility.

Stock Price Target

Assuming an oil price of $90 for all of 2008, and using reasonably conservative forecast assumptions, CNEH’s estimated sales this year are $47.8 million with EPS of $0.70. Using an average oil price of $95 for 2009, forecast sales are $84.5 million and fully diluted EPS $1.10.

Using a p/e of 10, these EPS estimates should support a share price of $10 by late 2008 or early 2009, especially with the company committed, via pledges given under the $15 million financing package, to obtaining a Nasdaq or AMEX listing before the end of February, 2009.

Longer-term investors may take comfort in the view that a year later (end 2009/early 2010) the share price should approach $20 whilst still being moderately valued relative to 2010 EPS.