Thursday, March 5, 2015

Genel 2014 results and Valuation

Genel Energy released their full 2014 results today, and the stock price has shot up 10%.

Guidance for 2015 is for $350-400m revenue (at $50 Brent), and a 38% increase in production volumes.  Based on that, I estimate 2015 profits to be 26c (or 17p) profit per share, using generous assumptions:

This would give a high PE - fair enough in a cyclical industry.    What if we adjust for a long term price of Brent $70?

  • From their 14th May 2014 Investor presentation, and after going through the flowchart (p38)  Genel's revenue rises/falls by around 6% for every 10% rise/fall in the oil price.
  • So an 40% oil price increase to $70 Brent would give a 24% increase in revenue, to $496m.  Profit would be 60c or 40p.  At a share price of 600p, thats a PE of 15.  Not cheap.  And with a few unrealistic assumptions.
What am I missing?

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