Huronia 3 and 4 are included as earlier blogs on Workathon.Huronia 1,2,and 3, are consulting pieces on possible improvements to Midland.Huronia 4,5 and 6 are blogs on improvements to Wasaga Beach.Huronia 4 is also included in an earlier blog on Workathon.Huronia 5 is one of my blogs on Wordpress called Econothon.Here is Huronia 6, also a piece on Wasaga Beach.
Huronia 5
The basis of Huronia 5 is that there are a number of things that the town council can do to improve business coming into Wasaga.The town council can do a number of things easily and cheaply to increase traffic into Wasaga Beach and keep visitors longer.This includes programs to encourage restaurants on Mosley Street(the main street) to reduce prices and try to increase the number of visitors.Also to buy up abandoned properties on the main street and use them for community businesses such as thrift shops or even a drop-in centre.This will require little expenditure and little change to the structure of Wasaga Beach.
Bigger changes The changes mentioned in Huronia 5 will not have a big impact.Wasaga Beach has a population of 17,000
according to the census figures but the town sign says it has a population of 18,000. Both are the peak population and do not reflect the population in the winter.It is somewhat comparable to another town further along the beach called Port Elgin.Port Elgin is on Lake Huron and is built along the beach.It has a population of only 10,000 to 11,000 but is within 3 to 4 kilometres of another town called Southampton.Their total population is about 18,000.It's main street is very similar to Wasaga as both have empty lots and houses and cottages on their main street.But I believe that Port Elgin has more new construction;it has a new Walmart,Canadian Tire and two or three new subdivisions, all in the east end.Both towns have a steady base of population from campers.Camping facilities are excellent in both towns.
Both have small libraries as only a small percentage of the population use it. But Wasaga definitely has more motels -both low-priced and higher-priced motels.Port Elgin has more cottages for rent and generally visitors stay longer in cottages than in motels.Port Elgin has the headquarters for two small bus companies and they have maintenance facilities for the buses here also.Also their bus terminal is a little bigger as it connects to more towns than Wasaga Beach.Both Port Elgin and Wasaga Beach have a few higher-priced motels for high end visitors.But neither really counts on getting much traffic here.In summary, their structure is similar.
A new platform
Small towns need some kind of platform to jump from a small town to a mid-sized town, for example,a town like Hanover or Peterboro.Unless a town has a very special situation such as an industry or a software company that is in town the usual platform to growth is agricultural or lumber processing.First the town must have successful farming or forestry around the town.The processing would be done inside the town.Examples abound, for example, Creemore has a brewery,Bobcaygeon has a milk factory,Owen Sound has grain milling and other towns have small lumber milling plants.Hanover has a small grain milling operation as well as a meat processing plant.These plants cannot compete with multi-national plants but they will satisfy the region and have fresher products.Here is the most popular way for small towns to jump to the next level. But it is far from easy to do.Both Port Elgin and Wasaga Beach need a big investor and some kind of guarantee of low wages (at least for the initial period).And they need some people with special skills.
Sunday 28 December 2014
Monday 22 December 2014
Measuring the performance of a stock
There are three or four performance measurement indicators for a stock.They can be used to tell if a stock is doing better or worse?The three main indicators are the earnings per share(e.p.s.) and the price/earnings ratio(p/e) and the yield or dividend per share.But all three depend on the earnings per share.Movement in the e.p.s affect the other two.This is the key measurement tool to determine how well a stock is doing.
EBITDA versus funds flow
The two main indicators of earnings performance are EBITDA and funds flow.The difference between the two is that EBITDA is earnings before interest, taxes and depreciation and amortization.Funds flow is EBITDA after (ITD and A) which are non-cash items have been removed from earnings.But these four items are not directly related to performance.Both amortization and depreciation are arbitrary expenditures.There is a lot of scope in the amount taken each year or quarter.The amount taken is affected by the value of the asset and the value of the equipment being depreciated.Resources with a long life such as oil pools and mines and industrial equipment can be depreciated at a slower rate.Other assets with a short life should be depreciated more quickly or at a larger rate each year.In addition, an asset with a big value such as an oil pool worth $10 billion will still have a large depreciation charge even if the rate is only 2 or 3% a year.So the amount of the depreciation charge has little to do with the earnings or the performance of the stock.
The second indicator of earnings per share is the funds flow method.This is EBITDA after all charges have been taken( both cash and non-cash items).This is the amount available to shareholders, chiefly for dividends and capital expenditures.But also to preferred shares and to some debt charges.
How do REITs do it
REITs and real estate companies have come up with another perfmorance indicator;it is called adjusted funds flow from operations(AFFO).This indicator starts with funds flow and makes some adjustments,chiefly foreign exchange gains or losses and financial charges.REITs typically take large depreciation and amortization charges.So typically AFFO per share is substantially less than FFO per share.This is a figure that is usually used as e.p.s for REITs.They do not use adjusted EBITDA per share as an earnings measurement.But other than the large depreciation and amortization charges, the main difference between AFFO and adjusted EBITDA per share is the taxes.It is good to remember that adjusted EBITDA per share will always be larger than AFFO per share. AFFO has deductions for foreign exchange losses and financing charges.But in a case where taxes have been deferred as in some utility stocks, taxes will not be significant either.But the amount of the depreciation and amortization charges will always make AFFO and adjusted EBITDA different.And almost always AFFO will be smaller.
Funds flow is still Useful
Some companies will use funds flow as their measure of e.p.s.But it is less useful in comparing to many other companies.Canadian companies like to use adjusted EBITDA per share.Yet funds flow still has it's uses.It is more useful to look at debt and interest coverage.Funds flow is the amount of money available to pay interest if it were all used for that purpose.It is a measure of protection for debt holders.A standard multiple of debt coverage is 2.5 to 3.5 times funds flow.
Secondary indicators
Once you have a good steady measure of earnings the other two can be derived from there.For example, a p/e ratio of 15 is high and 5 times is fairly low.A yield of 3% is ample and a yield of 7.5% is quite high.However the higher the dividend the greater payout to shareholders of earnings.And if earnings do not increase then the divdend will not likely increase.Both secondary indicators are directly affected by the earnings per share.First the investor must be sure that the right measure of earnings per share has been used.
send emails to daleandmac@gmail.com for financial advice
EBITDA versus funds flow
The two main indicators of earnings performance are EBITDA and funds flow.The difference between the two is that EBITDA is earnings before interest, taxes and depreciation and amortization.Funds flow is EBITDA after (ITD and A) which are non-cash items have been removed from earnings.But these four items are not directly related to performance.Both amortization and depreciation are arbitrary expenditures.There is a lot of scope in the amount taken each year or quarter.The amount taken is affected by the value of the asset and the value of the equipment being depreciated.Resources with a long life such as oil pools and mines and industrial equipment can be depreciated at a slower rate.Other assets with a short life should be depreciated more quickly or at a larger rate each year.In addition, an asset with a big value such as an oil pool worth $10 billion will still have a large depreciation charge even if the rate is only 2 or 3% a year.So the amount of the depreciation charge has little to do with the earnings or the performance of the stock.
The second indicator of earnings per share is the funds flow method.This is EBITDA after all charges have been taken( both cash and non-cash items).This is the amount available to shareholders, chiefly for dividends and capital expenditures.But also to preferred shares and to some debt charges.
How do REITs do it
REITs and real estate companies have come up with another perfmorance indicator;it is called adjusted funds flow from operations(AFFO).This indicator starts with funds flow and makes some adjustments,chiefly foreign exchange gains or losses and financial charges.REITs typically take large depreciation and amortization charges.So typically AFFO per share is substantially less than FFO per share.This is a figure that is usually used as e.p.s for REITs.They do not use adjusted EBITDA per share as an earnings measurement.But other than the large depreciation and amortization charges, the main difference between AFFO and adjusted EBITDA per share is the taxes.It is good to remember that adjusted EBITDA per share will always be larger than AFFO per share. AFFO has deductions for foreign exchange losses and financing charges.But in a case where taxes have been deferred as in some utility stocks, taxes will not be significant either.But the amount of the depreciation and amortization charges will always make AFFO and adjusted EBITDA different.And almost always AFFO will be smaller.
Funds flow is still Useful
Some companies will use funds flow as their measure of e.p.s.But it is less useful in comparing to many other companies.Canadian companies like to use adjusted EBITDA per share.Yet funds flow still has it's uses.It is more useful to look at debt and interest coverage.Funds flow is the amount of money available to pay interest if it were all used for that purpose.It is a measure of protection for debt holders.A standard multiple of debt coverage is 2.5 to 3.5 times funds flow.
Secondary indicators
Once you have a good steady measure of earnings the other two can be derived from there.For example, a p/e ratio of 15 is high and 5 times is fairly low.A yield of 3% is ample and a yield of 7.5% is quite high.However the higher the dividend the greater payout to shareholders of earnings.And if earnings do not increase then the divdend will not likely increase.Both secondary indicators are directly affected by the earnings per share.First the investor must be sure that the right measure of earnings per share has been used.
send emails to daleandmac@gmail.com for financial advice
Tuesday 2 December 2014
The economics of SAGD plants
Alberta and Saskatchewan both have significant light and heavy oil deposits.The economics of each is different;both have several important factors to consider in their production and marketing processes.But at present day prices of heavy and light oil it is still more profitable to go the traditional way with light oil.And the main reason is still the price differential for light oil.
The reserves of heavy oil are massive at 135 billion barrels in Alberta alone.There are two main ways of extraction- mining and the in situ process."In situ" means on site in latin and it is a smaller and less capital intensive process.There are quite a few mining operations ;they belong to bigger operators such as Suncor and Japan Oil and Canadian Oil Sands.Mining operations require a large capital outlay. In situ operations have two well pairs;one is drilled at the bottom of the formation and the second one is above it.They are drilled into central pads and can extend for miles.The SAGD operation or steam assisted gravity drainage operation can drain a large area and a large resource. Steam is pumped into the top well and goes down the liquid drains into the bottom hole. Oil is then pumped up to an inlet facility where it is processed.Steam pumped into the top well turns tar into bitumen which is a semi-solid then it is processed by removing lighter oil fractions from the heavy crude oil. But the bitumen will not flow unless it is heated up.Once it goes into the separation vessel the coarse material is removed ; the sand settles to the bottom and "the middlings" are suspended. The impure bitumen froth is removed.Later naptha (a byproduct) is added to reduce viscosity.You now have a layer of bitumen and other products and a layer of naptha and lighter oil products. Sometimes there are "hot spots" or "dry spots" and this slows down the flow of oil that is being pumped up to the inlet facility.This can be remedied by using Inflow Control Devices that cost up to $1million per well.This improves the well conformance and the flow of oil to the inlet;the cost of the device is paid for quickly. As a well that is not performing may produce only about 200 to 250 barrels per day while a performing well may produce up to 650 or 700 barrel per day.This makes a big difference to the economics of producing heavy oil.
Factors in the Equation
There are a number of factors that must be considered to determine which resource is more economical.First,the heavy oil deposits tend to be bigger in size.The in situ process can have wells running for long distances.Also a heavy oil plant will extract around 60% of the oil in place whereas only 5 to 15% of light oil is extracted on the primary recovery and 30 to 35% of the remainder on the secondary recovery.So total extraction is about 30 to 40% of the reserve in comparison to 60% for heavy oil. But the all important factor is the netback which is the price minus the cost of recovery or the contribution added by each barrel to the bottom line. Presently the netback for light oil is $52 per barrel and the netback for heavy oil is $34 per barrel.The differential in the netback favours producing a barrel of light oil over a barrel of heavy oil in today's environment.And there are less barrels of light oil around to extract.
The reserves of heavy oil are massive at 135 billion barrels in Alberta alone.There are two main ways of extraction- mining and the in situ process."In situ" means on site in latin and it is a smaller and less capital intensive process.There are quite a few mining operations ;they belong to bigger operators such as Suncor and Japan Oil and Canadian Oil Sands.Mining operations require a large capital outlay. In situ operations have two well pairs;one is drilled at the bottom of the formation and the second one is above it.They are drilled into central pads and can extend for miles.The SAGD operation or steam assisted gravity drainage operation can drain a large area and a large resource. Steam is pumped into the top well and goes down the liquid drains into the bottom hole. Oil is then pumped up to an inlet facility where it is processed.Steam pumped into the top well turns tar into bitumen which is a semi-solid then it is processed by removing lighter oil fractions from the heavy crude oil. But the bitumen will not flow unless it is heated up.Once it goes into the separation vessel the coarse material is removed ; the sand settles to the bottom and "the middlings" are suspended. The impure bitumen froth is removed.Later naptha (a byproduct) is added to reduce viscosity.You now have a layer of bitumen and other products and a layer of naptha and lighter oil products. Sometimes there are "hot spots" or "dry spots" and this slows down the flow of oil that is being pumped up to the inlet facility.This can be remedied by using Inflow Control Devices that cost up to $1million per well.This improves the well conformance and the flow of oil to the inlet;the cost of the device is paid for quickly. As a well that is not performing may produce only about 200 to 250 barrels per day while a performing well may produce up to 650 or 700 barrel per day.This makes a big difference to the economics of producing heavy oil.
Factors in the Equation
There are a number of factors that must be considered to determine which resource is more economical.First,the heavy oil deposits tend to be bigger in size.The in situ process can have wells running for long distances.Also a heavy oil plant will extract around 60% of the oil in place whereas only 5 to 15% of light oil is extracted on the primary recovery and 30 to 35% of the remainder on the secondary recovery.So total extraction is about 30 to 40% of the reserve in comparison to 60% for heavy oil. But the all important factor is the netback which is the price minus the cost of recovery or the contribution added by each barrel to the bottom line. Presently the netback for light oil is $52 per barrel and the netback for heavy oil is $34 per barrel.The differential in the netback favours producing a barrel of light oil over a barrel of heavy oil in today's environment.And there are less barrels of light oil around to extract.
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