Opinions
Bill Harris, CFA
Arc Resources Ltd
ARX-T
BUY
Mar 11, 2024
Stock price when the opinion was issued
You might be interested:
The price of oil always gets pulled around. He likes the natural gas side a bit more -- it's been through a bear market for years and now coming out of that. Over time, increased ability to get nat gas offshore and the world needs it.
But if you go 100% natural gas it's more risky. So, be more diversified but with a tilt to gas. He likes names that are cheaper than they ought to be. For him that's ARX or, for more torque, AAV.
Whether to sell depends on whether it's in a non-registered account, are you going to be paying tax, and how big is your position.
Pays a nice dividend, boosted by 12%. Beat on Q3. Higher production, lower cost. Great assets and operators. 8% shareholder returns. Cheaper than it ought to be, with good production and cashflow growth. Good balance sheet. If you want an oil and gas name, this is one to really consider. But he's not keen on oil here.
EPS of 63c beat estimates of 53c. Revenue of $1.42B beat estimates of $1.38B. EBITDA of $881M beat estimates by 13%. Profit fell 27% despite higher production, due to lower prices. Production rose 4.7% year-over-year. Production matched estimates. EPS does call for lower income in 2025 but we think this is well-reflected in its low valuation. Overall, we are comfortable.
Unlock Premium - Try 5i Free
He likes the idea of adding on weakness, that's what he's been doing. He uses a lot of optionality in his portfolios. So he's writing puts in the energy sector to acquire companies; if they don't go to those prices, he just earns the income. He's perfectly happy with a strategy like that at this point.
If we get a harder economic landing at some point, then oil has some more downside. The US outlook for crude oil demand was just downgraded. We're in a trading range, and he's accumulating into weakness.
Attachie, a growth project, has superb economics. They have about 4 or 5 more buried in their portfolio. Exposure to condensates, but it's really a gas play. Outlook for Canadian nat gas is meaningfully improving as LNG Canada comes on. (This is as long as producers show discipline and don't flood the market.) Conservative management, which is what you want in this climate.
Stands out as a really good value proposition, which he thinks will attract US investors when they realize there's nothing left to buy in the USA. Believes embedded resource value will be realized by somebody down the road. Yield is 2.96%.
It is a soft spring for gas prices and we have had a very warm winter, therefore the demand is down. The interest has been in technology and AI. The market has tightened up recently and money has come back. It is at multi year high. It is 50% natural gas and 50% liquid gas, which he considers similar to oil. He owns Tourmaline for gas exposure and CNQ for oil exposure. If he owned another it would be ARC which covers both sectors. It is good for returning money to shareholders.