Home' Trinidad and Tobago Guardian : August 16th 2015 Contents One of the most important decisions
that a potential investor in the
TTNGL (Phoenix Park) initial pub-
lic offering (IPO) has to make before
investing in the stock is whether the offer
price of $20 presents value for them.
One of the ways this can be done is by
getting a sense of the company's price to
earnings (P/E ratio). This is one means of
valuing a company that measures its share
price in relation to its earnings per share.
The P/E ratio of a company is determined
by taking its price and dividing it by the
company's earnings per share. In this case,
TTNGL's earnnings per share would be cal-
culated by dividing its net income by the
number of its outstanding shares.
Strictly speaking, if one were to look at
TTNGL's historic (or trailing) results, which
would be for 2014, its P/E ratio would be
a negative number, because TTNGL reported
a loss of $4.87 per share for the year ended
December 31, 2014 (see page 76 of the
The trailing P/E ratio for TTNGL, there-
fore, would be the price of $20 divided by
its earnings per share for 2014, which would
be -$4.87 or ($4.87).
Therefore the trailing P/E ratio of TTNGL,
based on the IPO price of $20 would be
$20/-$4.87 = -4.1 or (4.1).
Now, on Tuesday last, a local securities
company called Firstline Securities, put out
an initial analysis on its website headlined
"What difference does a year make."
In that analysis, Firstline provided an
earnings per share figure of $2.23 (by using
the Phoenix Park profit figure of US$166
million for 2014, one assumes) and arrived
at a P/E ratio of 8.97 = $20/$2.23.
Now at the end of my column on Thurs-
day, I did a projected P/E ratio, based on
TTNGL's first quarter earnings ending March
31, 2015, of $0.24 a share (see page 111 of
My back-of-the-envelope projection
assumed that TTNGL's earnings per share
for the balance of 2015 (three quarterly peri-
ods: April 1 to June 30, July 1 to September
30 and October 1 to December 31) would
be the same as the $0.24 it earned in the
first quarter. This results in a projected earn-
ings per share for TTNGL of $0.96 ($0.24
X 4 quarters) and a projected or forward
P/E ratio of 20.83 or $20/$0.96.
Now, there is a vast difference between
a P/E ratio of -4.1 (based on the actual
TTNGL 2014 loss), Firstline's preliminary
P/E ratio of 8.97 (based, one assumes, on
Phoenix Park results) and a P/E ratio based
on a projection of TTNGL's 2015 earnings
Firstline's first-past P/E for TTNGL of
8.97, indicates a company that is underval-
ued, which presents significant upside poten-
tial for investors in the IPO.
An estimated P/E of 20.83, however,
would mean that TTNGL is tremendously
overvalued and would present little or no
short-to-medium term value for potential
investors. In other words, at an estimated
PE of 20.83, based on a projection of 2015
earnings for TTNGL, the IPO is not likely
to be oversubscribed and unlikely to provide
investors with the type of bounce that FCB
did in 2013.
Therefore, investors hoping to turn a quick
profit by buying up the TTNGL shares at
$20 at the IPO and selling those shares six
months later at $30 or $35 may be in for
some significant financial disappointment.
While there is merit in using the complete
2014 results, by NGC's own admission prod-
uct prices in 2015 are likely to be "at least"
45 per cent less than 2014. That admission,
in my view, means that using the 2014
results presents a misleading estimate of
Of course, if NGC were to publish PPGPL
and TTNGL's second quarter results (for
the period ending June 30, 2015) potential
investors would have a better sense of
whether using the 2014 results to come up
with a PE estimate is even advisable.
Based on my back-of-the-envelope esti-
mate of TTNGL's P/E ratio, and based also
on the natural gas quality and quantum
issues dealt with in Thursday's BG, my view
of TTNGL is that it presents little short-
term upside and that it has a cloudy future
even if its product prices skyrocket in the
Those who may be looking to buy TTNGL
for the dividends should be aware that,
based on the earnings per share of $2.23,
Firstline calculated that TTNGL (or Phoenix
Park) would have paid out $1.34 in dividends
per share based on a 60 per cent payout,
a dividend of $1.56 a share based on a 70
per cent pay out and a dividend of $1.78
based on an 80 per cent payout. A dividend
of $1.78 and a share price of $20 is a dividend
yield of 8.9 per cent, which is excellent.
If TTNGL's earnings in 2015 turn out to
be close to $0.96, the dividend picture
becomes quite different. An 80 per cent
dividend payout means a dividend payment
of $0.768 and a dividend yield of 3.8 per
cent, which is what Republic, First Citizens
and NEL pay.
Firstline gets the last word: "TTNGL is
a much less attractive prospect today than
it was last year. However, we maintain that
TTNGL is still an attractive proposition for
investors who want to take on additional
moderate risk in their portfolios.
"The company is fairly stable and has
substantial pricing and earning power, but
is also exposed to commodity price cycles
and as such may experience volatility in its
earnings and cash flow.
"There are substantial additional risks
regarding other more technical aspects of
the business. We will discuss PPGPL's prof-
itability and financial health, delve into the
various technical and economic risks involved
and also examine hypothetical downside
scenarios---a critical part of any analysis,
given the substantial commodity price risk
involved in TTNGL / PPGPL."
AUGUST 16 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
COMMENTARY | SBG3
Is $20 too much?
Last week Monday, some questions seeking clar-
ification of the TTNGL initial public offering, were
submitted to state-owned National Gas Company,
which is the offeror of the 75.8 million shares at
$20 per share. The responses came on Thursday
and, because of space constraints, an abridged Q
and A is presented:
: "Table on page 223 indicates that PPGPL's rev-
enue and profits declined every year between 2011
and 2014. Page 278 indicates that EBITDA in 2014
was almost half what it was in 2010.
Is PPGPL a business in decline?"
The company experienced a decline in its profits
during 2011 to 2014 for three reasons:
1. Decline in inlet volumes
2. Decline in liquid content in the inlet gas stream
3. Decline in product prices due to the decline in
crude oil prices.
Please refer to Pages 280, 171, 295 of the Prospectus
for further analysis on these matters.
: Lower production as a result of "Reduction in
NGLs content in supply inlet gas" and "gas curtailment
in 2012. Are these structural issues with PPGPL?"
The reduction in NGLs content in supply inlet
gas and the gas curtailment in 2012 are external
supply constraints in the environment in which
"Page 283 indicates that revenues declined
from US$808.3 million in 2013 to US$696.8 million
in 2014. "Approximately US$57.2 million of the decline
was caused by a 5.8 per cent decrease in average
MBV selling prices, attributable to excess NGLs supply
and high inventory levels in the market....The remain-
ing US$65.9 million of the revenue decline was due
to a decrease in production volume primarily from
lower NGL content feedstock and lower delivered
volumes from ALNG."
Are the structural decline issues (lower volumes
and lower NGL content) contributing as much to the
reduced revenue as the reduction in the average MBV
: For the year 2014, the decline issues in revenue
over 2013 ie lower volumes, lower NGL content and
prices are as follows:
Prices---47 per cent
NGL Content---14 per cent and
Third party volumes---39 per cent
As with question above, each of the above issues
are external supply constraints in the environment
in which PPGPL operates.
to BG questions
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