DNR - Embedded Expectations Analysis - 2020 05 05
Denbury Resources Inc. (DNR:USA) currently trades at a steep discount to UAFRS-based (Uniform) assets, with a 0.2x Uniform P/B. At these levels, markets have bearish expectations, and management may have concerns about oil price volatility, reduced production, and cost managementSpecifically, management may be downplaying concerns about reduced production, and they may have concerns about the unhedged impact of oil prices on cash flow and lower realized prices from weaker oil differentials. In addition, they may lack confidence in their ability to sustain interest expense reductions, maintain depletion, depreciation, and amortization levels, and capitalize on sustainable energy tailwinds. Furthermore, they may have concerns about their level of control over the Gulf Coast joint venture and the deferral of incremental capex for Cedar Creek Anticline. Finally, they may be exaggerating their focus on cost management and the capacity of their CO2 pipeline
Denbury Resources is an independent oil and natural gas company. The company's operations are focused in two main operating areas: the Gulf Coast and Rocky Mountain regions. The company's properties with proved and producing reserves in the Gulf Coast region are situated in Mississippi, Texas, Louisiana and Alabama, and in the Rocky Mountain region are situated in Montana, North Dakota and Wyoming.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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