IAE: Octagon increases target to 3.00
Major Reserves Increase
(Ithaca Energy reports in U.S. dollars; all figures have been converted to
Canadian dollars, except as noted.)
Event
Last year was one of significant events for Ithaca, and one in which the
Company achieved a significant growth in reserves, more than making
up for the sale of assets to Dyas in mid-year.
Proved reserves have more than doubled since the Dyas transaction,
and Probable reserves are up 2.7x. On a year-over-year basis, Proved
reserves are up 10% to 16 million barrels equivalent, Probable reserves
increased 49% to 21 million barrels equivalent, and Possible reserves are
up by 60% to 42 million barrels equivalent.
The present value of the 37.2 million barrels equivalent of the Proven
and Probable reserves, discounted at 10%, is US$768.4 million or $5.00
per share; we estimate that cash in the Company could be worth
another
.30 per share, for an approximate asset value of $5.30 per
share. Adding in Possible reserves brings total reserves to 79.2 million
barrels, with a present value of US$1.8 billion or $11.45 per share; $11.75
after including an estimate for cash.
Reserves at Beatrice and Jacky had a positive revision, reflecting their
better-than-expected production performance. In addition, new reserves
were added at Stella, Carna Hurricane and Harrier. All reserves are
royalty free.
Drilling of an appraisal well at Stella is anticipated this quarter.
Ithaca is debt-free.
Recommendation
As of this morning, despite the stock price increase of some 10%, the
Company was trading just over 2x this year’s cash flow estimate of
.60 and at less than one-third of its Proven and Probable asset value
estimate of $5.30. Clearly, this is one of the most undervalued stocks in
the sector. Experience has shown, that over time, stocks will trade to
their Proven and Probable asset value – the “hardest” valuation metric.
We are maintaining our BUY recommendation and increasing our
target price to $3.00 (from $2.00).
COMPANY BULLETIN
February 1, 2010
Overview
• Ithaca Energy reported a major increase in
reserves for 2009. Proved reserves have more
than doubled since the Dyas transaction and
Probable reserves are up 2.7x.
• 2P reserves of 37.2 million boe, discounted at
10% have a present value of US$768.4 million or
$5.00 per share; 3P reserves of 79.2 million boe
have a present value of US$1.8 billion or $11.45
per share.
• We are maintaining our BUY recommendation
and increasing our target price to $3.00.
Price $1.28 Market cap. ($mm) $ 2 07.7
Shares O/S (mm) 162.3 Net debt (56.1)
Avg. daily vol. 900,000 Enterprise Value $ 1 51.6
2007 2008 2009E 2010E
EPS (basic) -
.02 -
.24 -
.06
.15
CFPS -
.01 -
.15
.38
.60
Production/mm shares 0.0 0.0 26.0 28.5
P/CF n/m n/m 3.3 2.1
EV/DACF n/m n/m 2.4 1.5
Revenues (mm) $1.4 $3.5 $126.4 $132.9
Cash Flow -
.8 -$20.0 $62.4 $97.9
Net earnings (2.5) (32.4) (9.4) 23
