Positives in the report
1. Increasing production 2007 averaged 29,346 boe/d (2008 range of 32,000 � 34,000 boe/d)
2. Higher range of costs estimates lowered was $12.50 - $13.50 (2008 range $12.50 - $13.30)
3. Royalty range lowered was 19% to 20% (2008 range 17% - 19%)
4. 38% of the portfolio is now oil compared to a range of 31% to 34% in 2006.
5. Potential for large reserve increases.
6. Increased reinvestment in the business. Growth creates value not dividends, so in the long run this will be better for more stock appreciation.
7. Tax pool
Negatives in the report
1. Dividend lowered from .15 to .12 cents per months; however, still at a healthy 14% yield
Positive market conditions
1. In third quarter natural gas averaged $6.35 and oil was $68.51 on their financial statements. I am forecasting this average will be $7 for NG and $85 for oil in Q1 of 2008.
2. Company is on target to have $522 million is revenue for 2007.
3. Based on my average prices for NG and oil with their production forecast I predict quarterly revenue will increase to $167.8 (28%) to 178.3 (36.3%) million (671.2 to 713.2 million per year). This is based on their 62% NG/38% oil ratio.
The increasing reserves/production along with some now saying natural gas is going to take off in 2008 makes this stock even more of a buyout candidate. Remember a buyer isn�t buying the stock for a divided, but for the potential for increasing production which creates more shareholder value.
Any price declines on Monday will be an opportunity to buy more because the stock has come well off its highs of $15.11 (Div. yield then 11%)
In my opinion AAV is acting like it is shifting to a growth company.
Tax Pool in your pt.7 is not clear. Just say "AAV will not pay any taxes in 2011 like other CanRoys and aav will not pay any taxes in 2012, 2013, 2014, 2015, 2016, 2017 and in 2018. This is the reason it should fly higher tomorrow, but no later than next week. imho
how do you explain that they lost $0.21 in Q3? that means if you give back the $0.45 dividend, they only made $0.24 per share. have you seen the number of shares balloon over the last quarter by 15%? how can they sustain this??? they lowered the dividend because outstanding shares are increasing. if they made $0.24 again in Q1, they can only afford to pay $0.07 in dividend. I just don't get it. unless we get a HUGE NG price jump (hurricane in the summer), how can this stock's price move up and not down to $7??
The way AAV would counter what you are saying (from what i understand) is as follows:
If natural gas prices drop, production in Canada will drop as well. AAV sees this as a plus for their own revenues if other players are reducing production.
i normally sell a stock if its dropped 10-15% under my buy price. But with AAV and HTE i'm actually buying more.
can't see it staying under $10 for extended periods of time.
I'm happy to hold it for next several years so I don't really care what it trades at. lower is in fact better - however, the dividend cut pisses me off. But so long as it goes towards increasing reserves, that somewhat tempers the sting.
check out this post on value investing:
If you put enough lipstick on this pig it may even start to look good to those of us who have owned it all the way down from $19.00 a share which represents a 50% loss in precious capital.
All the basic fundamentals of this company have consistantly deteriorated over time and leave much to be desired. So when you call it a growth stock your being overly optimistic.
The management of Advantage has done nothing but waste stockholder equity over the last couple of years and I don't expect that to change anytime soon. They call this latest decrease in the dividend sustainable but there is much doubt about whether that will turn out to be the case.
You can pick the under-valued stocks from the others. Like picking a diamond from a jar of glass. Thus, "probably a buy anywhere south of 14"?
If you bought at 14 and it goes to 9, you would have lost 36% of value. Even with the dividend, you would have to hold it 3 years to break-even.
i have no doubt we will see the $9 range tomorrow. However, i do not expect that it will last long.
My whole point, however, is that the dividend cut is irrelevant at this point. The yield is still huge, any loss tomorrow is already going to happen, and nothing in the fundamentals has significantly changed.
That said, i am interested to find out just how much of the cut was already priced in the stock.
i'm also done with my soapbox routine now :) Back to the bleachers!