SilverBow Resources (SBOW) Update - Jan 19

[dan_s]

I have updated my forecast / valuation model for SilverBow, breaking out 2024 by quarter BASED ON THE MIDPOINT OF THE COMPANY'S GUIDANCE.

SilverBow closed the Chesapeake South Texas Acquisition on November 30th. It is a truly TRANSFORMATIONAL deal for a company of this size.

SilverBow will be producing over 100,000 Boepd within a few months. < Up from 59,542 Boepd in Q3 2023.

TipRanks' 2024 forecast (very close to my forecast) is $1.2 billion of revenues, $8.80 earnings per share and $27.15 operating cash flow per share.
Based on my forecast, SilverBow's free cash flow should be within the range of $60 to $80 million in 2024.

SBOW was trading at $25.60 when this was posted. < Less than 1X 2024 operating cash flow per share.
My current valuation is $60/share, which is just 2.5 X 2023 to 2025 annualized operating cash flow per share.

SilverBow has some good natural gas hedges in place for 2024, so their realized gas price should be ~$3.40/mcf for the year. ~65% of 2024 revenues will be from the sale of oil and NGLs.

My updated forecast model will be posted to the EPG website late this afternoon.

[allen46]

I also have a fairly large position in SBOW and don't understand why the market valuation is so low.

[marc.wolin@yahoo.com]

Silver Bow

The target price seems good! What kind of transformational events need to take place to get the actual stock price there ? Is that 60 to 80 million dollars in net free cash flow for the whole of 2024?

Marc Wolin

[JBtheBrit]

I think the big issue with a lot of these smaller O&G names is that free cash flow is negligible. Op cash flow is great... but if they have to burn most of that to just stand still via capex, I think the market is saying show us you can generate real free cash flow. Not sure what changes the dynamic. I have a holding in SBOW....so I am routing for that to change !

[Fraser921]

I agree, spending all the cash flow to pay for cap ex and not generating FCF does not equal a good return on investment. It's holding all the names back. Some have to borrow money, some are paying dividends and borrowing to pay for it. If the dividend is cut , the prices will fall even more. There's a flaw in the model in arriving TP as it ignores cap ex , interest expenses , etc.

[dan_s]

Don't ignore production and proven reserve growth.

Remember that any upstream company can generate a lot of free cash flow just by shutting down their drilling program.
SBOW is an Aggressive Growth company.

Marc: That is $60 to $80 million of free cash flow for the year 2024. See row 44 on the forecast model.

[ChuckGeb]

Never can understand why you report eps and cash flow per share but usually give free cash flow as an absolute number. Makes comparison and analysis extremely cumbersome. Just saying and frankly it is the most significant number to me. It is the reason Callon and Vital stay in the tank. Lots of moving parts to SBOW makes it hard to get arms around.

[aja57]

Perhaps as a constructive thought, free cash flow yield ( leveraged or unleveraged) would be a more helpful gauge in following a company’s quarterly or yearly metrics. Certainly more of a dynamic indicator as is return on invested capital.

[marc.wolin@yahoo.com]

SBOW

This is a tiny company with a lot of debt. Do you compare debt using EV or Market Cap. I am used to comparing debt to total assets. They have a small amount of cash. Do they have the overall resources to be sustainable, or will they be pushed into a corner where they have to sell. Stop drilling is not a resource and neither is a stock sale. Where will the cash come from to continue operating? Insiders have the advantage of stock options they have accumulated over the years. As result, they are willing to be bought out and let the public shareholders facilitate a deal for them at our expense. What is the plan for this stock?

Marc Wolin

[dan_s]

Marc: Take 30 minutes to study the forecast model and it will answer all of your questions.
"Free Cash Flow" from operation is just operating cash flow - D&C capital expenditures. It does not consider money spend for acquisition.

I do not consider SilverBow, with production approaching 100,000 Boepd, to be a "tiny company".
My largest gains have come from micro-caps that grow to small-caps that grow to large-caps.

Only invest in the "Elite Eight" if you want high-quality large-caps. There are a lot of "Safe Bets" in our High Yield Income Portfolio.

SilverBow should get more Wall Street Gang attention when it provides detailed guidance for 2024. The year-end 3rd party reserve report should also be helpful in valuing the shares.

PS: Keep in mind that each of our members need to define their own investment goals. Some of our members want safety and high dividends. Some of our members want stocks that have "Home Run" potential. Free cash flow is a good thing, but it can be misleading if the company is just depleting out its reserve base.