Vaalco Energy: Ugly And Ignored Attributes Creates An Undervalued Opportunity

TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

VAALCO Energy (EGY) is a tiny independent energy company with a ~ 53M market capitalization. It specializes in oil producing properties in Gabon, West Africa, and Angola. Specifically, activities include production, development, exploration, and acquisition of oil and natural gas properties. EGY manages exploration as an operator in Gabon, Equatorial Guinea, and West Africa. Therefore, its intrinsic value linked with oil prices. Being that, each $5/barrel improvement in oil price increases annualized cash flow by ~$6MM per management's public guidance. At December 31, 2016, VAALCO had 2.6 MMBOE of proved reserves related to their property in offshore Gabon Africa. Their U.S. property ownership and interest are in North Texas and Montana, now not relevant oil production. VAALCO incorporated in 1985 with 104 employees.

The enterprise and market value for VAALCO (EGY) dropped 89% since 2012, 84% from 2014. In contrast, an exceptional TTM financial performance reported with a reasonable and improving balance sheet. Enterprise value to operating income over the TTM is 2.49, EV/OI = 2.49, EV/GP = 1.21, EV/EBITDA = 1.86, and EV/Sales = .62. These measures support the deep relative and historical bargain price thesis. For these reasons and others EGY now attracts quality longer-term value institutional ownership. Further evidence of the market’s overreaction to the downside is the declining inconsequential short balance (1.20% short float) coupled with modest positive insider activity with no sales.

Insider transaction summary: April 2017 50,000 shares or total of $47,000 purchased for $.94 per share. The fiscal year 2016 recorded 60,000 shares purchased for an average price of $1.08. During 2015 159,317 shares purchased for an average price of $1.68, a total of $267,219.
If the favorable TTM results continue Vaalco Energy offers at an extreme discount to current operating performance and proven reserves. Then, the future stock price moves much higher.

Vaalco just published their June’s lifting results, 629,246 Bbls. These bullish production results have not been exceeded since 9/25/2015. click to view historical liftings detail.

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Disclosure: Long: EGY

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