Adams Resources & Energy Inc. (NYSEMKT:AE) Per Share Values on 12-10-2010:
Market value $23.03
Cash $ 7.18
Equity value $ 15.85
Dividend rate 2.30%
Stock performance has been robust since our first review of Adams Resources & Energy, Inc., which can be found here.
Great Balance Sheet
Adams has $7.18 of cash per share with no debt. This equates to the remaining enterprise having just a $15.85 per share value. They earned a whopping $0.66 cents a share in the third quarter ending September 2010 and $1.48 for the last nine months. The cash flow from operation for the last nine months was over $26.5 million dollars or $6.72 per share. This works out to be 42% return on the enterprise cash flow in only nine months. The annualized cash flow from the enterprise works out to 56% or $8.96 on a per share basis. After such a strong move, we still believe that the high levels of cash are camouflaging the true earning power of the company.
The current peer groups trade about 9.32 times the cash flow. Applying this metric would value Adams at about $83.50 per share while adding the $7.18 of cash per share, thus creating a market value of $91.
|Price to enterprise Cash Flow||1.76||9.32||13.89|
The $1.48 per share earned during the last nine months gives them and enterprise PE of 10.7. If one annualized the last nine months performance, it would create $1.97 or a PE of 8.
The current peer groups trade about 22.17 times enterprise P/E. Applying this metric to Adam’s would give them a value of about $43.34 per share plus $7.18 cash thus creating a market value of $50.52.
|P/E Enterprise Ratio||8||22.17||21.52|
After Adam’s last board meeting, they raised the dividend 8% or $0.04 this year. Adams started issuing a dividend in 1994, paying annually in the fourth quarter since then. The new dividend rate is a 980% increase compared to its first $0.05 in 1995. Historically, they have paid one dividend per year and the rate has been announced concurrently with the Q3 operating results. This should be considered the only dividend expected until November of 2011.
We believe that Adams is trading at about an 55% discount even thought the underlying stock appreciated significantly since we included them in our investment with income portfolio.
Adams is still well below most of their peers in the oil refining and marketing industry. The core business appears to be accelerating as was demonstrated by the last quarter’s outstanding profits, even though they are decreasing their involvement in natural gas exploration. Based on cash flow, the enterprise value of the company should be significantly or about double their current value. Knowing its true value, we placed it in a core position within our portfolio.
Disclosure: I am long AE.
Additional Disclosure: Durig Capital and its clients currently do have positions in Adams Resources.