Opinions
Lyle Stein
Baytex Energy Corp
BTE-T
COMMENT
Dec 02, 2014
Stock price when the opinion was issued
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Huge disappointment, not operationally but on the share price. Typifies an out-of-favour stock: Canadian mid-cap with hair on it. Last quarter had no hair, beat expectations, paid down debt, generated lots of free cash, bought back stock. Deep value, mispriced, too cheap to sell. He's waiting, but patience is being tested.
Oil is down, which doesn't help. The budget shows a slight decline in production from year end exit rates, so investors may be worried that all the spending ($1.2B) is not going to boost actual average production rates. BTE also updated its five-year plan, which looks OK to us with a planned reduction in debt. But the sector remains out of favour overall right now.
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They executed in their drilling. There's been huge multiple contraction among small/mid-caps. He exited around $3.85-3.90. Shares are in an air pocket now, falling on no natural buyers (energy is out of favour). Stock is cheap, given cash flow. They pay half that cash to buy back shares. Are better stocks than this, but wouldn't rule out buying this again.
Had a good 3rd quarter and things were looking quite nice, and then all of a sudden they had an issue with the tax people on a $50 million question mark on whether they have to pay back taxes to Revenue Canada. That kind of hit the stock at a time when oil prices were going down. This was followed by the OPEC release, so it is like a triple storm has hit them. Management has a really good track record of deploying capital well. Recycle ratios tend to be high relative to the industry. Made a US acquisition on which they paid a little bit of debt for it, which has been an additional concern. A good name. You’ll just have to wait and see you what the oil prices are going to do.