Over the weekend, I re-read ‘Boomerang’. In it, Lewis investigates how the financial crisis hit Greece, Iceland and Ireland, among others. The chapter on Ireland was relevant to O&G in particular. A random academic noted bizarre investment behavior and wrote a paper that anticipated the crisis. Instead of listening, everyone went on TV and to the papers to scream at him and tell the world he was an idiot. And then a year later, you know what, he was right. Don’t you hate that?

My new friend Tom Loughrey, CFA predicted current O&G crisis in Q1 ‘18. While he and I have a different valuation approach, it has always struck me why companies don’t focus on their NAV/share. Clearly, they have internal models. How else could they decide to do share buybacks?  Or enter merger talks? And while I agree that the SEC standardized measure of PV10 misses the P50 case, it’s a pretty good indication of value-if only relatively.

This is important, as I did a little exercise that valued my ‘favorite’ companies at their SEC PV10-net debt / share. It was ugly. Absolutely.

So, in ‘20, as we continue to watch stock prices fall and 0 premium mergers, I predict companies that are able to thrive will feel comfortable publishing 2P NAV/share to build back confidence.

#hottakeoftheday