Buy-recommended Norsk Hydro (NHY) received a natural gas price of NOK1.85 a cubic meter in the fourth quarter last year, up from 1.36 in the third quarter. The Norwegian kroner price for the European supplier translates to almost $8 a mmbtu, still less than $8.50 for six-year futures in the U.S. and $13 for the natural gas equivalent of six-year oil futures. NHY stock offers 17% appreciation potential to estimated net present value of $130 a share.
Short adjusted reserve life of 5.2 years for oil combines with long-life index of 14 years for natural gas to yield an average life index of 7.8 years. The overall short life is matched by unlevered cash flow multiple, EV/Ebitda, of 4.3 years that is lowest of peers. Present value of 30% for natural gas and 36% for oil leaves 34% for the remainder, mostly aluminum. Cash flow at high aluminum price appeared strong for the quarter just reported while income was nil after discretionary writeoffs and hedging loss.
Original Publication Date: February 14, 2006
Kurt Wulff's McDep Associates offers realtime, independent research services for investors in the energy and utilities sectors. For more information, go to www.mcdep.com or email Mr. Wulff at firstname.lastname@example.org.