Opinions
Eric Nuttall
Arc Resources Ltd
ARX-T
COMMENT
Oct 11, 2019
Stock price when the opinion was issued
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He'd skew toward this one. Best-run intermediate O&G company in Canada. On most fundamental metrics, WCP is cheaper. It depends on your own investing style. He's often willing to pay up for management that he considers superior. In a 5-10 year timeframe, you can't go wrong with either.
One of the top beneficiaries of the LNG market. Just started shipping overseas, and this will grow over time. Improving ROC last couple of quarters. Valuation is 6.4x EV/EBITDA, not worrisome. If you believe in LNG, this is your go-to name.
3-year CAGR is 17%, 1-year is 21% including dividends. Yield is 2.7%, low payout ratio, dividend is growing.
(Note the short timeframe.) He even bought a bit more. Hasn't broken key support levels; so as long as it doesn't, he's OK. Nat gas demand for AI is huge. There's also cloud computing, population growth, and general energy usage. Lots of reasons that nat gas has a future, but near term it's subject to trading swings.
Check out his blog for the story on natural gas, and ARX is part of that story.
Temperatures are starting to moderate, and nat gas prices are down. Overproduction in US. Ramp-up of LNG Canada slower than expected, but should be picking up.
She's actually buying more of this one for clients, not trimming. Embedded growth via inventory through reserves. Likes that a lot of its prices are hedged to higher international gas prices (instead of Canadian). Doesn't need to acquire to fund growth, whereas TOU does.
If she were going to own 2 names, she would also own TOU. But she doesn't. ARX is first in the pecking order. If you have the patience perhaps hold onto TOU a bit longer, as we are getting into the colder months.
Prefers Arc over Tourmaline. Arc did a great buy of Seven Generations years ago and are migrating a little to light oil, better growth potential and a much lower valuation. A natural gas play makes more sense than oil now. Is slightly bearish oil with OPEC adding more production (expects oil to break $60). Has sold out of all the productions to buy energy infrastructure.
Natural gas is a funny commodity -- price movements are so erratic. Domestic market can move 5-10% in a day. LNG is trying to create a global market.
Chart shows corrective phase last 6 months. Broke recently, but don't read too much into that because it has a lot of support in the $24 range. Might go as low as $20. Whole sector's starting to look quite interesting. See his Top Picks.
Market Outlook TOU-T is planning to spin off some of their infrastructure into a royalty like offering, while retaining 80% of the value. Prior to this the stock was trading at all time lows and the market was giving zero value to the infrastructure they held. The company was trading at 3 times cash flow. The assets they are effectively selling are being valued at 9 times cash flow within the offering. This should remind people how undervalued this space is and there are self-adjusting opportunities that will "fix the funk" we see today. ARX-T has a similar 20% of its company in similar infrastructure. Once we get past the upcoming Federal election things should move forward. What a party says on the campaign trail and what happens in reality can be two very different things. The Liberals appear to support the TMX pipeline project in reality and it will ultimately get built, he says. 11% of our GDP in Canada comes from the energy sector.