Typical mid-cap e&p company is valued via two main valuation methods:
- Asset-based valuation
- financial “peer” valuation
Modelling is based on a number of assumptions made by the analysts in order to predict the potential scenarios. The typical ones for the Ukrainian gas market are:
- Gas prices (for example,this may be based on the cost of Russian gas at the German border,etc.)
- Inflation (UAH inflation estimates may be taken from the IMF (International Monetary Fund) forecasts)
- Exchange rates (these may be obtained from a reputable economic research consultancy)
- Fiscal regime (these may be taken directly from the legislation)
1UA1 offers a range of financial modelling services depending on your company’s needs. We will build a comprehensive model for you from scratch and provide you with all the necessary explanations and interpretations as to its meaning and implications.
Asset-based valuation:
Reserve Valuation:
- Valuation based on “Proven and probable” reserves (i.e. booked reserves)
- Usually taken as Enterprise value or Market Cap per barrel of oil equivalent (EV/Boe or Mcap/Boe)
Production Valuation:
- Valuation based on the discounted net present value of a company’s reserves
- Not the same as NPV10 figures published in placing documents or engineering reports
- NPV value published by broker
- Based on estimate of production profile of company by analyst
- Based on rule of thumb discount factor
Financial peer valuation:
- EV/EBITDA
- Price earning ration (P/E)
- EV/Debt adjusted cash flow
- DACF= post tax cash flow plus cash interest expenses less the tax shield generated by the interest expense
Formulas and definitions
¤ Market Cap = company’s shares outstanding * current market price of one share
→ It is usually used to determine the company’s size
¤ Enterprise Value (EV) = Market Cap + Debt + Minority interest + Preferred shares – Total cash and cash equivalents
→ It is usually used to determine company’s value
¤ Net Present Value is the difference between the present value of cash inflows and the present value of the cash outflows.
→ It is usually used to determine the profitability of an investment/project.
¤ P/E ratio = Market Value per Share / Earnings per Share (EPS)
→ Price to earnings valuation ratio measures a company’s current share price compared to its per share earnings
¤ EBITDA (Earnings before Interest,Tax,Depreciation and Amortisation) = Revenue – Expenses (excluding interest,tax,depreciation and amortisation)
→ This indicator is usually used to analyse and compare profitability between companies and industries
