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Wall Street Grand Report
Company: Sino Gas Intl Holdings (OTC BB: SGAS)
Current PPS: $0.42
If you didn’t know, Wall Street Grand’s key to success with our Star picks is our fundamental analysis. There are many traders that make investment decisions based off charts or technicals but we feel the best way to make a good investment decision is through researching a company’s financial position. Numbers don’t lie. Even though we also consider a company’s technical indicators the main characteristic we look for in our picks is solid fundamentals.
We have had so many enormous winners this year in the commodities sector from gold to silver to oil and agriculture plays. If you haven’t read any of our reports on these commodities please take the time to read them as they will help you position yourself for the upcoming inflationary crisis based on our current government’s actions of printing endless amounts of dollars out of thin air. You can read our reports on our Market Commentary page. The one commodity that we feel is the most undervalued during the current economic crisis is natural gas. We have mentioned this to the group a few months ago but since then our team has been on the look out for a small-cap natural gas play that has the characteristics we look for to give us another superb
winner for our club in 2009.
After a long time researching we have finally found what could become one of the biggest natural gas plays in the entire market over the long-term with the most upside potential. The company I am referring to is Sino Gas International Holdings trading on the Bulletin Board Exchange under ticker symbol SGAS. SGAS right now is extremely cheap at only $0.42.
SGAS is engaged in the development of natural gas distribution systems and the distribution of natural gas to residential, and industrial customers in small- and medium-sized cities in China, through our indirectly-owned subsidiaries in the PRC, Beijing Gas and its subsidiaries.
Beijing Gas is organized as a holding company with 27 subsidiaries, known as project companies, in four provinces, and four branches offices in Beijing, as shown on the corporate structure chart provided below. The project companies are the operating subsidiaries of Beijing Gas. Each project company operates as a local natural gas distributor in a city or county, known as an operational location, under an exclusive franchise agreement between Beijing Gas and the local government or entities in charge of gas utility, pursuant to which Beijing Gas formed the project company to operate the natural gas distribution project in the operational location. These exclusive franchise agreements last between 20-30 years.
Through its subsidiaries, Beijing Gas is a natural gas distributor, principally engaging in the investment, operation and management of city gas pipeline infrastructure, in the distribution of natural gas to residential and industrial users, in the construction and operation of natural gas distribution networks, and in the development and application of natural gas related technologies. Beijing Gas and it subsidiaries own and operate 37 natural gas distribution systems serving approximately 100,900 residential and five industrial customers.
SGAS’s 2008 revenues were $21.45 million up 6% from 2007 revenues of $20.27 million. SGAS‘s net income was actually down though 79% from 2007 into 2008 because in 2008 57% of their revenues came from natural gas sales and 43% from connection fees while in 2007 only 36% of their revenues came from sales with 64% from connection fees.
As you know natural gas prices have declined significantly in the past 2 years. Also, gross margins on connection fees are much larger than natural gas sales. One thing we noticed in the income statement is the fact that there was a $1.2 million non-recurring charge in 2008 unrelated to business which without this would have given SGAS net income for the year of about $2.8 million.
Now if we take SGAS’s total outstanding shares of 25 million shares and multiply it by the current price of $0.42 we get a market cap of only $10.5 million while they would have had $2.8 mm in net income without this one time non-recurring charge.
Based on our calculations, if we use SGAS‘s potential $2.8 million in net income (which we think will grow in the upcoming years) divided by 25 million shares ,we get an EPS of $0.11. At the current PPS of $0.42 this would give SGAS a P/E of only about 4!!! This is insane! Most natural gas companies we follow have a P/E of 10-15! If SGAS had a P/E of just 10 it would be valued 162% higher than the current price!
On top of it, SGAS is already PROFITABLE, has shareholder equity of $58.25 million, and is trading under book value! Right now, SGAS‘s book value is approximately $1.94 per share while it closed yesterday at only $0.42! The only reason why SGAS is so low right now is because it is completely undiscovered by the investment community! Now that our club is giving it the awareness it deserves who knows how fast it could explode!
Now imagine if with a combination of China stocks booming, natural gas rallying, SGAS gets their net income back up to $7.7 million as in 2007, and it trades at a realistic P/E like 10-15! If this happens we could potentially see our new 4 Star Stock become a TEN BAGGER!
Remember, the third quarter is typically the best quarter for natural gas! Check it out-
This is a no brainer! Do not waste any time and start to do your due diligence and read SGAS’s sec filings immediately! If you have any questions feel free to contact us!
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