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Shadow Stock

Political Uncertainty Creating Two Deep Value Opportunities

October 14, 2014 | About:

TransGlobe Energy (NASDAQ:TGA) is an oil and gas exploration, development and production company. It operates in two segments, the Arab Republic of Egypt and the Republic of Yemen.Founded in 1968, it’s headquartered in Canada.

TransGlobe Energy was ranked #30 in Fortune Magazine’s 100 Fastest-Growing Companies of 2012.So what happened that transformed TGA into a deep value stock? The stock was $20.23 December 2010.

Financial results have been stellar with several years of proven capital allocation,high ROIC. The main issue comes down to fear of political turmoil in Egypt and the related issue with receivable from the state owned national oil company of Egypt (“EGPC”).They also had an operational issue with PCP pump failures that impacted production. The pumps have been fixed. Lastly, pressure on the price of oil, coupled with profound weakness in small capitalization stocks.

TGA now trades as a deeply undervalued company using any valuation metric, DCF, book value, NCAV, or earning yield.

Mean reverting metrics;

3 year stock return is -16%, 52 week change -44.30%

Enterprise Value/EBITDA = 1.69, EV/EBIT = 2.19

Average annual ROIC from 2010 to MRQ is 16.86%, couple this with an EV 359,410,000/long term assets of 395,439,000 = .90: those assets based on historical returns should easily outperform the current market price for those long term assets.

Dividend yield trailing of 3.80% supported by strong financial position and free cash flow. Z score of 4.30 indicates a remote chance of bankruptcy.

Graham value number of $11.82 versus the current price of $5.08,

Historically and industry cheap valuation… EV/EBIT = 2.19, EV/Revenue = 1.14, P/TB = 1.05 = NCAV = 3.22

NCAV = 3.22, Cash per share = 1.47, AR per share = 1.97, Current assets of 3.74 per share, Current liabilities of .51

Multiple catalysts exist for this financially sound high ROIC company.

No position at this time.

Valuation Measures

Market Cap: 380.65M , Enterprise Value: 359.41M

Trailing P/E (ttm): 5.71

Price/Sales (ttm):1.26 ,Price/Book (mrq):0.74

EV/Revenue (ttm):1.14 ,EV/EBITDA (ttm): 1.69

Profit Margin (ttm): 21.05% , Operating Margin (ttm): 48.15%

Return on Assets (ttm): 13.73% , Return on Equity (ttm): 13.10%

Revenue (ttm): 314.13M , Revenue Per Share (ttm): 4.22

Qtrly Revenue Growth (yoy): -0.20%

Gross Profit (ttm): 249.89M , EBITDA (ttm): 213.18M

Total Cash (mrq): 110.06M , Total Cash Per Share (mrq):1.47

Total Debt (mrq): 88.81M , Total Debt/Equity (mrq): 16.58

Current Ratio (mrq): 9.29

Book Value Per Share (mrq): 7.15

CFFO (ttm): 167.94M . FCF(ttm): 58.42M

52-Week Change: -44.30%

52-Week High: 9.66 , 52-Week Low: 4.93

Shares Outstanding: 74.93M , Float: 71.68M

% Held by Insiders: 4.53% , % Held by Institutions: 40.00%

Trailing Annual Dividend Yield: 3.80


Another idea trading at a deep discount due to political uncertainty is Russia Media CTCM: CTC MEDIA INC.

Both CTCM and TGA moved higher today, TGA +3.35% and CTCM +3.31%. My work was based on Sunday night’s prices but the thesis is still intact.

Rating: 4.0/5 (1 vote)



TFC premium member - 4 years ago

Can you foresee the country risk substantially changing,not likely. The board should pay a special dividend.

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