GNE - Genesis Energy

[Snoopy]

Morningstar has a valuation of $2.20 (reduce) on GNE with the main reason being "..At current prices, Genesis is overvalued. Our main concern is that 25%-30% of EBITDA comes from Kupe, which has volatile earnings and will deplete over the next decade or so...."

Kupe has a limited life. So the correct way to value Genesis is to work out the present day value of the Kupe field, both the oil and gas components, while modelling the declining cashflows and using an appropriate discount rate. Once you have a present day dollar value for Kupe take that off the Genesis share price. I will call the result of that the 'Kupe Subtracted Share Price'. Now work out the non Kupe earnings of Genesis and divide the 'Kupe Subtracted Share Price' buy the 'Non Kupe earnings of Genesis'. You will then get a PE ratio that is the true underlying long term PE ratio appropriate for Genesis. And guess what? It will be rather higher than the PE ratios you see bandied about in the newspaper.

SNOOPY