Contrarian Buy-recommended Statoil (STO) offers unlevered appreciation potential of 42% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of $35 a share. Fourth quarter results released on February 11 matched our expectations from three months ago for unlevered cash flow (Ebitda). Cash flow and reserve life support NPV in an industry context. The dividend for 2009 to be paid in June 2010 has been set at 6 Norwegian kroner per share, down from NOK7.25 the previous year. The new dividend sets a base from which it can grow every year with less sensitivity to the business cycle. Under the previous policy the dividend was tied more rigidly to earnings, which have fluctuated with a change to International Accounting Standards (IFRS) and with the economic swings of the past few years. As a result, investors can now have more confidence in the sustainability of the indicated 4.7% yield.
Meanwhile, futures prices for the next six years for oil settled at $83 a barrel on February 12, above the 40-week average of $82. Finally, we changed our previous “Buy” on STO to “Contrarian Buy” after stock price dropped below its 200-day average of $23 a share recently.
Originally published on February 15, 2010.