Analysts reports

Further note from Al Stanton this morning at RBC, fine-tuning his first response:

We still see the potential for transformational cash flow growth in 2012, and believe the stock offers good value - SOCO is trading at a 37% discount to our revised core NAV of 508p/share and a 2012 cash flow multiple of ~3x.....

Our revised PV10% of 558p/share* (down from 569p) comprises three key elements – fields onstream and net financials of 379p/share, development upside of 129p/share (primarily remedial activity on CNV) and exploration upside of 50p/share.

* this compares with 561p indicated in yesterday's first cut comments

I would note that the underlying figures for the comment I highlight are that he has "remedial activity on CNV" contributing 89p per share. I have to assume that this is in fact the separation activity planned for Q1 that will enable liquids production of c 2,000 bopd to be added and the gas sales agreement finalised (and backdated to the start of production in 2009!) - and will also allow additional reserves to be booked.....otherwise it seems too high.

BUT the rest of the "development" number is 33p per share for TGT (and 7p for Mongolia). The 33p number is far too low, IMO, because it is only an 11% uplift on his core valuation that is based on 80mn barrels of reserves at TGT (which implies total TGT reserves of c.320mn bbls). So.....he seems only to be looking at c.350mn bbls gross at TGT potentially - and thus ignoring the possibility that 500-600mn bbls may be the ultimate estimate of 2P. Accordingly I see a much greater potential for development uplift from TGT (though it won't all be achieved, even after phase 2).....

...but, having said that, I see he has another 24p (out of his 50p) for explo drilling at TGT, so perhaps that is a nod in the right direction?

Either way, I see plenty there to back my expectation of a £6-8 valuation....especially when there is zero in for TGD.

Incidentally, he sees 2012 reported net income as being $498.7mn - and $905mn cash on the balance sheet by the end of 2013 (though I'd guess some of that is going to start disappearing on share buy-backs unless the market wises-up quickly)

ee

Why does'nt the company back your £6-8 valuation? If they did they would be buying back shares aggresively at almost a 3rd of the top end of your valuation - there not exactly thick are they.

How credible is the £6 number.......Average analyst valuation seems to be £4.70, they have got Soco more right then the experts on these threads over the last few years.

The £6 valuation seems just as ridiculous as the £40/ valuations we used to get in old money 4-5 years ago.

I would be happy to get £4.50 at this this rate with Africa valued at a big fat 0 & nothing for TGD.

In reply to Isaac, post #393

How credible is the £6 number.......Average analyst valuation seems to be £4.70, they have got Soco more right then the experts on these threads over the last few years.

I've explained the differences repeatedly, including in the post that precedes yours. The "average analyst" is also running his numbers based on a 10% discount rate - whereas the actual cost of financing for most credible purchasers is likely to be nearer 6-7%!

I don't give a stuff whether you or anyone else agrees my opinion. We'll find out in the end who is right.....and IMO it won't be the "average analyst".

That does'nt answer my question, I asked :

Why does'nt the company back your £6-8 valuation? If they did they would be buying back shares aggresively at almost a 3rd of the top end of your valuation - there not exactly thick are they.



Give me £10 notes for £5 and I would be loading up the truck all day long, would'nt you ?

"Give me £10 notes for £5 and I would be loading up the truck all day long, wouldn't you ?"

Well, apparently not! The shares are on the LSE under ticker "SIA"...help yourself!

Over the last 4 years Soco has never been anywhere close to what many including Analysts percieve as fair value for the company, let alone being overvalued!!!

That is how shabby the performance has been. I can count a number of companies that have done well in that period........

Brent is up almost $2 today, Ftse up slightly, yet Soco is down almost 2%.....

The market speaks volumes and I don't blame it.

The performance of the company really has been CRAP the last few years and that is putting it mildly....Clearly most here agree with me as indicated by the depressed share price.

The money speaks louder then some of the jibberish posted on the boards...

In reply to jseth123, post #396

jseth

As I said I don't think Soco is worth £6+ so hardly 2 for 1 IMO & I am not convinced management think that either otherwise they would be buying aggresively IMO.

In reply to Isaac, post #395

Why does'nt the company back your £6-8 valuation? If they did they would be buying back shares aggresively at almost a 3rd of the top end of your valuation - there not exactly thick are they.

Lets wait to see the evidence before trying to rush to a wrong conclusion shall we?

I'm quite sure that the company have a clear idea of the value. I am also sure that they are (quite correctly) pretty greedy when it comes to using shareholders' funds. As I've said many times - feel free to criticise my valuation (or the company) AFTER the deal gets done and my £6+ ideas are market-tested! Until then, please stop wasting everyone's time with the constant supply of pointless drivel.

ee

Lets wait to see the evidence before trying to rush to a wrong conclusion shall we?

No buy back RNS, are you sure they understand the value of the company? Or maybe it's you and me that have our numbers wrong. Maybe the company is only worth £4.

I'm quite sure that the company have a clear idea of the value.

I have little confidence that they do as a) it feels like they can't seem to find a buyer that will stump up what they are looking for b) no Clear evidence of any aggresive buying despite having a large cash pile on the balance sheet

As I've said many times - feel free to criticise my valuation (or the company) AFTER the deal gets done and my £6+ ideas are market-tested!

Don't think I want to sit here discussing Soco after they have sold up. And it won't be productive use of my time either, I prefer a pro-active approach.

Until then, please stop wasting everyone's time with the constant supply of pointless drivel.

This is a discussion board for sharing comments. I am no perma bull, this is by far my largest holding but right now I have very little positives to say. I want to be honest to myself and readers and as such I will tell exactly how I feel rather then beat around the bush looking for reasons as to why I should be positive.

I think the people who boast in Free capital of having 20,000+ posts on bulletin boards but have been consistently wrong about this stock for the last 4 years is wasting everyones time - maybe they should consider posting less.

I've been pretty spot on since I have been ranting about the failure of TGD - My mistake has been not taking more action.

Go back and read the posts on stockopedia, all is there.

In reply to Isaac, post #400

Sadly Isaac, old chap, you spend all your time ranting and none of your time actually analysing.

Ranting will get you and everyone else precisely nowhere.

Neither will confusing the matter of value with the matter of the share price!!!

All your comments can be reduced to a single moan: "WHY IS THE SHARE PRICE SO LOW?" .......and then you proceed to look for scapegoats wherever takes your fancy at that moment in time.

There ARE no scapegoats. The only person to blame is yourself .....for ranting instead of thinking.  The rest of the reason for the share price is simply down to the market. Market prices rarely reflect actual value - the only time they do is AFTER someone has bid cold hard cash for a company. The rest of the time the market is simply guessing about the right price (sometimes too optimistically - but recently too pessimistically) - and it is evident from your comments and those of (many but not all) analysts, that too few people actually spend time thinking about value and doing their own research.....

....and that is why the share price is where it is. For now.

ee

A suggestion to ee. This thread seems to have become a platform for Isaac to vent his frustration over SIA's poor drilling record, their poor managment and his own failure to sell his shareholding at £ 24 in old money. I wonder why you bother to respond - have you considered ignoring Isaac's posts unless they really merited a reply ?

In reply to highgate55, post #402

Yes of course. I ignore a proportion. Only the last two posts of mine fail to contain anything directly relevant to valuation or analysis.

The other reason I comment is that he is simply wrong in so many respects. Should one let Gresham's Law apply to bulletin boards? I think not.

ee

The rest of the reason for the share price is simply down to the market. Market prices rarely reflect actual value

How can you possibly blame the market when the FTSE was up by 62 points today as was Brent by $2?

But Soco finished down 2% -It is company specific related.

Soco is priced where it is because of the lack of success they have had with TGD and the African wells. It's quite simple really - the company has'nt performed to expectations and the market has punished it for the poor performance.

It was the management who bid for the acreage

It was the management who agreed to cough up funds to contract a rig and personnel to drill & contributed toward the analysis of seismic and where the well should be drilled

You don't just go out there and drill anywhere and hope to strike it lucky. You drill based on probabilities and when they have got it wrong they need to take responsiblity, rather then saying that is the nature of the business.

Tullow have had considerable success in Africa - I would like to think it is much more then "pure luck" and I genuinely believe there is an element of skill.

Does it surprise people that Soco tend not to talk about their success rate these days? I've been around long enough to know they used to boast about it a lot during the TGT days.

Failures not something you boast about.....

Expect another incredibly dull Annual results next year, just like the last 4 have been...

In reply to highgate55, post #402

The reason ee replies is because he is looking after his interest. He acknowledges there has been problems but chooses not to speak about it in public.

I on the other hand will freely talk about it even though it may not be in my interest to do so as I have a shareholding and ideally I want the share price to go up, however I want the management to acknowledge they have made mistakes, be humble and improve. So that eventually I can make a decent return on my investment

To state it is the nature of the business I actually find quite arrogant because it does not acknowledge the mistakes that have been made.

But I will admit for the management to openly speak about their mistakes in public is perhaps not the best route to take either.

But what has clearly been demonstrated to date is the path they have taken i.e. drilling in Africa and TGD is perhaps not the best one.

I've been banging on about it for so long that I think the best route to take is to sell the company and put your feet up and enjoy retirement......

Hi Isaac,

Since your criterion for deciding whether a company is worthwhile or not is (currently) based on 'success with the drillbit'; and you've just mentioned TLW, why haven't you sold out at any one of a number of points over the last few years and put your money where your mouth is - with them ?

Could it be that (a) you lack the courage of your convictions ? (b) that you think TLW is fully-valued (c) that you secretly like the fact that - for an E + P company - good ol' Soco is actually pretty conservatively run ? Not, IMHO, a bad place to be when the chips are down and the markets are looking a bit shaky (as they have for the last couple of years).

You've been given lots of opportunities to make other choices - and yet you're still here !

I wonder why that is ?

Man up, sir !

Actions speak a lot louder than words. Alternatively - as my late father might have said : " Empty drums make the most noise"

I really think you should put up or shut up. Either would be welcome.

extrader

I held Tullow after the crash having bought around £4-5 at the time, I was silly enough to have sold it early after making a good profit.

I am not switching to Tullow as I think I missed the boat......Changing and chopping from one share to another can be quite costly...

The plan is to see out the end game unless we get a substantial rise in Soco where I feel it's worth taking some money of the table....If we drill TGD we may get another spike up and it maybe worth reducing my position...

There are peple who actively trade Soco, I could have made a fortune the last 4 years by doing so. But then again to my cost I had a lot more faith in the management team in delivering!

And ironically I now have conisidertably less faith so hopefully the reverse will happen in the next 6 months.........

In that case I hope to god management sell soon because I don't think I can handle another couple of years of Isaac's repetitive rants.

Hi Isaac,

Well, having made your bed (by deciding not to back TLW) , is it right to blame management for your decision/ the way things have developed subsequently ?

People usually accept the consequences (good or ill) of their freely-made decisions - and try to do something about it where they've gone wrong. It's a valuable life lesson and part of the process of growing up.

Knowing when to cut your losses - if that's how you see it - is also a useful skill.

Maybe you should move outside your 'comfort zone' with Soco and find a new, more promising challenge ?

Just a thought.

In reply to Isaac, post #405

The reason ee replies is because he is looking after his interest. He acknowledges there has been problems but chooses not to speak about it in public.

Please do not ascribe completely false motives to other people. Of course things haven't gone as well as we all hoped - the same is true, ex-post, of about 80-90% of E&P companies. That is what the usual odds of exploration drilling imply!

The market price may tell you where the company has been - but it tells you absolutely nothing about where it is going!

ee

In reply to Isaac, post #400

Isaac

"...maybe they should consider posting less...."

"...I have been ranting..."

Have you ever considered the benefits of a period of reflective thought? Quiet contemplation uninfluenced by the attempt at projecting to an audience?

"...Don't think I want to sit here discussing Soco after they have sold up. And it won't be productive use of my time either,..."

If you don't think about your investments/speculations once they have been crystallised into successes or failures and analyse what happened and work out you did right and what you did wrong, then how can you ever improve as an investor?

I recently read a comment that speculators are like drivers who look a few feet ahead of the bonnet of their borrowed car whereas investors are in a car they own and are looking way down the road. For the former what matters is the next 10 seconds/minutes until they hand the car back for the latter it's the next 10 months/years.

Of course a long term investor can waste his time using his rear view mirror to identify missed opportunties for short term trading  in and out of his chosen vehicle. But what's the point of doing that? By definition a long term investor has chosen/decided not to concentrate on the short term and is not primarily concerned with short term opportunities. Instead he is trying to identify long term - and usually much bigger - opportunities with better risk/reward characteristics. Such investments can really only be evaluated based on their long term outcomes. By definition short term volaltility is not the issue.

Soco is a long term investment thesis which has made fortunes for early investors with the patience to wait for the story to unfold. Short term speculators/traders have made the mistake of buying high and then lacking the patience to wait for the end game. 

This is of course their privilege. We all find our own individual pathway to heaven or hell.

But what is truly irritating beyond endurance is when short termers carry out a blitz of unjustified and unjustifiable propaganda which slags off the company and its management for not behaving like a speculator imagines they should. Of course they don't. They are the ultimate long term players. If you want a speculation opportunity you need to look for a less reputable company run by spivvy management which promotes short term share price blips at the expense of the long term. There is no shortage of such. But please do not complain that Soco isn't like that. That is precisely why it is attractive to LTBH investors.

Isaac, if you spotted an opportunity to get out of Soco at a higher price, but chose not to take it, then that is your failure not Soco's. It's you who needs to learn from that not them. Meanwhile a stiff upper lip and a bit of grit and humilty would help you through. It would certainly help your credibility.