Opinions
Eric Nuttall
Bonterra Energy Corp
BNE-T
BUY
Sep 25, 2013
Stock price when the opinion was issued
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Has a nice 4.9% dividend that is sustainable. They have done really well with costs. The story has free cash flow on current oil prices, which is going to help them pay off debt, which has been a little too high. Free cash flow yield for this year and next is much higher than it was in 2014 when oil prices averaged $94. This has a great history of ROC.
A small exploration stock. It appears the drilling is becoming predictive. It is rare we see an exploration play attractively priced in Canada. He seldom recommends exploration stocks in Canada. This management team has been successful in the past in the same terrain they are exploring now. (Analysts’ target: $23.25). (One of our faithful viewers has pointed out that BNN may have misinterpreted Rick's choice, and these comments might have been intended for Bonterra Resources (BTR-X) instead. )
This has always been tricky, because it is fairly closely held, and trading liquidity is pretty crummy. It is typically Canadian dividend funds that buy it and hold it. They found themselves in a position where they had taken on too much debt, and made a mistake of not hedging it off. Have high quality assets. Due to its lack of liquidity, he has been trading at a pretty healthy premium to others.
This hasn’t acted well. It’s like a lot of energy stocks, but this is still down 50% for the year. Got caught with a little “worse than average” balance sheet, which has been a kiss of death in the stock market. With the combination of a really good balance sheet, very low costs and drilling prospects, you are still down, but not very much. It will take a while. It’s one of those companies that needs $60 oil to be better. If you think that is not going to happen, then he would switch to something else where you would be better protected.
Exceptionally well run company. Largely light oil of the Pembina/Cardium field. Had some recent success in drilling the longer horizontals. Implication of this on certain plays in Canada is transformational. You spend maybe 15%-20% more on a well which could increase production from 250 to 1000. Payback is much faster and, as a dividend payer, it gives that much more cash flow and free cash flow to increase growth rate are pay out a higher dividend. Wouldn’t be surprised if they increased their dividend in the next couple of months. Probably trading at 9.5X, so not the cheapest stock but the implementation of technology, if successful, could transform this company to be able to grow potentially in the mid-teens and still pay a pretty healthy dividend.