Small-Cap Growth Portfolio - Feb 17

[dan_s]

I'm using the holiday to update the forecast models for our Small-Cap Growth Portfolio companies. I'm breaking out 2020 by quarter and adding my initial forecast for 2021. When they announce Q4 2019 results, their year-end 3rd party reserve reports and updated guidance for 2020 I will adjust the models accordingly.

These are the forecast models that I updated today:
Lonestar Resources (LONE)
SM Energy (SM)
Denbury Resources (DNR)
Magnolia Oil & Gas (MGY)
Goodrich Petroleum (GDP)

Unless you think WTI is going back in the $40s and staying there for two years, the small-caps are grossly oversold. Most of our small-caps have a very high percentage of their oil hedged in the upper $50s, so the recent dip in oil prices will have very little impact on their 2020 results. MGY is the only one that is not hedged.

For example:
Denbury Resources (DNR) has ~56% of their 1H 2020 oil hedged at $57.53 for WTI and $62.39 for LLS. 60% of Denbury's oil sells into the Louisiana Light Sweet (LLS) market at a nice premium to WTI. The company's blended realized oil price in Q3 (physical sales at market + cash settlements on their hedges) was $59.23/bbl.
Denbury is generating lots of free cash flow from operations TODAY and they are using it to buy back debt at a discount.

You can find the updated forecast models each day on the EPG home page. You must log on as a member to see them. The forecast models are macro driven Excel spreadsheets. You can download them to Excel on your computer and change the production and commodity price assumptions at the bottom to see how your assumptions impact EPS, operating CFPS and my valuation. Note that my valuations are now based on very low multiples of operating cash flow per share (3X for DNR).