Birchcliff Energy Ltd. (BIR.TO)

Smallish-cap, natural gas producer. Has 20+ years of delineated inventory and exploration. Capex heavy to grow production. Must wait until 2029 for any semblance of FCF. Reasonable upside if you're bullish on nat gas. Multiple of ~5x forward PE is in line with peers. Yield is 1.6%.

See his Top Picks for a name with more upside, inventory of equal quality and better depth, and a significantly higher dividend.

He lkes the size of the company but it has leverage issues. Could be a beneficiary of consolidation in the U.S. He wants to see long term past success of management. 

For natural gas, we would consider BIR 'decent' but would prefer TOU or AAV or ARX.  But we would be fine holding it still based on valuation and longer term potential. So it depends on what else is owned. We would not see as good enough to be the sole holding for the sector.
Unlock Premium - Try 5i Free 

Looks as though it's trying to break out. Be aware that there was a false breakout earlier this year. So you really want to see the peak back in March or so taken out.

Bases are good, and they say that "the greater the base the better the case". Pretty good base here of a year or more; a breakout would be powerful on the stock. (But if it fails, can also be powerful to the downside.) If the breakout is for real this time, tons of upside. He loves base breakouts; he wrote a book called Sideways on that topic.

Natural gas utility. Price of nat gas is volatile, and he didn't like that they didn't hedge the price. Nat gas price rolled over, and large dividend had to be cut in March 2024. Dividend is now skinny, with a yield ~2%, a much better strategy.

It is suffering much more than energy stocks in general. If it breaks $6 then buy for a swing trade.

Likes the energy sector, this is a great name within it. Attractive valuation. If you believe in decent energy demand and oil prices moving higher, which he believes, a name to add to your portfolio. Yield is 6.5%.

If nat gas spikes to $5, this might give you a higher return. It's smaller than Compares to Tourmaline and Arc which have scale in their projects.

BIR beat estimates nicely across the board, with a very big beat on EBITDA at $132M. Average production was ahead of estimates at 78,358 b/d. Operationally, things look fine, but it did lower guidance on expected lower prices. Still, consensus calls for good growth overall in 2025. The balance sheet has some debt but is OK overall. The stock reacted well to the news, and we would be fine holding this for sector exposure. 
Unlock Premium - Try 5i Free

Western Canadian oil and natural gas producer. Does not own shares. Not a good investment due to weak natural gas prices. 82% of production is natural gas which is not profitable at this time. If natural gas prices increase - would recommend Tourmaline. 

Owning a company that's more cyclical is not owned for the dividend yield. You can find 6-7% dividend yields on companies that aren't as volatile. This one is fine, but tied to underlying commodity prices. The group hasn't performed exceptionally well.

If he's correct, dividend was cut in half earlier this year, now yielding about 6.5%. On the high end for the industry, as capex takes a lot funding. Once cut, he assumes they won't cut again, at least not right away.

He's been buying other small nat gas names. Cut dividend, a good thing because they were using debt to fund it. Next year, payout ratio should drop to 73% with $4 gas, a lot more defendable. Concerns about debt, takeaway capacity, and CEO succession. Cleaner names elsewhere. Yield is 6.7%.

Good for TFSA. The company is on solid footing with the energy outlook positive for 2-3 years. Oil prices today are higher than last year's expectations. Also, we haven't seen the oil exploration which is normal for this part of the cycle. Be careful, given the emergence of EVs which is a long-term trend, though term there are question marks.

As part of Birchliff's orderly and planned leadership succession process, Jeff Tonken retired as CEO effective December 31, 2023, and Chris Carlsen is now the President and CEO. BIR has $244M in net debt, representing a small 0.9X net debt/EBITDA ratio and 0.15 debt/equity ratio. A rough estimation of ~$55M in quarterly cash from operations and ~$50M in CAPEX, along with ~$55M in quarterly dividends, equates to approximately $50M of debt issued each quarter to service its current dividend. It is tough to gauge exactly what the company might do if gas prices remain at these levels, but we feel the company is less likely to cut the dividend than it is to issue debt or equity to fund the dividends. At its currently low debt levels, we believe the company will likely continue increasing its debt to fund its yield.
Unlock Premium - Try 5i Free