In this market, finding undervalued stocks that represent as...

In this market, finding undervalued stocks that represent as close to 'no brainer' opportunities is pretty difficult.

However, finding stocks that are trading at a 60% discount to CASH BACKING presents a strong buy IMO, which is what we have here with Galilee.

Galilee IMO is one of the best positioned junior O&G stocks listed on the ASX, and has one of the strongest balance sheets you will find in the speccy end. In a market where it is so difficult to raise funds, GLL have an abundance of cash.

Some of the facts:-

CASH BACKING

With 152,140,466 shares on issue and $39M in cash, Galilee is cashed backed at 26c per share.

ASSET BACKING

The Galilee gas asset is estimated to be worth around $50M. Galilee with it's 50% interest is worth around $25M. This equates to around 16c per share.

COMBINED BACKING

Galilee is backed at a conservative 42c per share.

IMO Galilee should at least be north of the 26c per share cash backing. There are no fundamentals to explain the trading below cash backing.

They company has no debt and is able to service its entire administrative costs from the interest received on the $39M cash in bank.

They have no contingent liabilities and a quite reasonable exploration budget planned for 2012.

REASON FOR PRICE DROP

On 15th November 2010 Mr Campbell Smith resigned as a director of Galilee and advised the market that he intended to sell his stock.

IMO the market expected a significant dump as a result. What the market failed to realize is that Smith previously agreed to underwrite 16.8% ($4.2M) of the planned IPO of the NZ coal asset before BTU bought it out.

The point to take is he is a shrewd investor and not short of a quid.

A call to the company can confirm, but I have heard that he was offered a multiple of the current SP to acquire his entire holding and it was turned down.

CATALYSTS

- Sufficient cash for next 2 years as per chairman's address

- Potential for Smith's stake to be acquired at significant premium which would help re-rate the stock accordingly

- JV with AGL where they are looking to prove up to 1TCF this year

- Top 10 hold 50% of the company

- Trading at 60% discount to cash back naturally warrants a rerate