Opinions
Eric Nuttall
Cardinal Energy Ltd
CJ-T
DON'T BUY
Jul 25, 2014
Stock price when the opinion was issued
You might be interested:
He never buys a company on the expectation that it will be bought out. Good exposure to medium-heavy oil. Very manageable debt levels. Older, higher-cost assets, so it needs a higher than average oil price. If you don't care about capital appreciation and just want the juicy dividend, it's not the worst name.
Spending more money on a project, free cashflow won't be for 2 years, and market's attention span is very short. Concern they'll be burning cash to pay the dividend. Balance sheet indicates sustainable dividend, unless oil price really nosedives. Insider buying. Too small for him. Yield is 10.5%.
For the mid-cap Canadian companies in the space with higher yields, be very careful. If you're looking for dividend sustainability, we've gone through a couple of cycles in the last decade -- dividends have been both increased and reduced. Yield is 11%.
In the space, he prefers FRU.
Outspending free cashflow, using debt to finance dividend, not his preference. Gets concerning if oil price drops. Not sustainable for the next year and a half. In 2026, the cadence of capex reduces and the dividend becomes sustainable. Yield is 10.1%.
Look elsewhere. You may sacrifice 2% on the dividend, but you're getting one that's much more sustainable.
Sentiment remains challenged in the space (a common theme today), even though the Energy Index is up about 20% YTD. People are hiding in large caps, with few funds coming to small- or mid-caps. Hard to see it outperforming. Yield is 10.7%, pretty hard to replace. Not a name for new money.
Look at his Top Picks today, and then decide if you want to let this go for tax-loss selling.
This is more of a yield play. They IPO’d in Dec/13 at $10.50. Sold his holdings in the mid-$15-$16, feeling that the easy money had been made. They are now essentially a pure play on the Glock where they have drilled 2 wells. Three wells will be released the next time they come out with results in about 3 week’s time. The real upside is that they are under leveraged, and given the real low decline rate of their assets, they are generating a lot of excess free cash flow, which they don’t necessarily want to deploy into their existing play. They are looking at other plays. They have been targeting a 2000 barrels a day acquisition for many, many months. It seems they may be getting closer to achieving that. Given that they are trading at around 7.5-7.8 times enterprise value to cash flow, they’ll likely be able to make an accretive acquisition and have the stock go up. There are other names he would prefer right now.