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Hugoton Royalty Trust Message Board

  • jaqsports jaqsports Aug 29, 2012 4:13 PM Flag

    discount to reserves

    The dividend hiatus is causing a real discount to reserves at this point. Trading 20% below its 10% discounted cashflow value.I wonder when the dividend yield seller are done selling and the value players start buying. Any DCF model that incorporates a normalization of divs after the penalty period should come up with at least $7 present value, even without a perpetual value. Downside would be gas prices going to new lows.

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    • Any model depends on inputs, but assuming they really are trading 20% below fair value, that's likely not enough of a margin of safety to get value people interested. On the one hand, this isn't some TSX Venture Exchange traded junior selling at 30% of PV-10 NAV; it's easy to understand and execution is out of its hands (which is a good thing). On the other hand, as you note (and the recent decline reinforces), possible low/lower gas prices and legal factors demand a risk premium which probably isn't being paid yet.

    • Any model depends on inputs, but assuming they really are trading 20% below fair value, that's likely not enough of a margin of safety to get value people interested. On the one hand, this isn't some TSX Venture Exchange traded junior selling at 30% of PV-10 NAV; it's easy to understand and execution is out of its hands (which is a good thing). On the other hand, as you note (and the recent decline reinforces), possible low/lower gas prices and legal factors demand a risk premium which probably isn't being paid yet.

    • Any model depends on inputs, but assuming they really are trading 20% below fair value, that's likely not enough of a margin of safety to get value people interested. On the one hand, this isn't some TSX Venture Exchange traded junior selling at 30% of PV-10 NAV; it's easy to understand and execution is out of its hands (which is a good thing). On the other hand, as you note (and the recent decline reinforces), possible low/lower gas prices and legal factors demand a risk premium which probably isn't being paid yet.

    • In addition, my guess is that XOM will settle with the trust and there will be a small recovery.

 
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