Crescent Point Energy Corp (CPG.TO)

Canada Pension Plan is rumoured to have backed the management proposal against the proxy battle. However, the company has lingering frustration about historical investment decisions. He thinks there will eventually be some significant change within management.

Former market darling. Oil prices hasn’t helped them. He would look at other names with a little more growth.

Playing the energy market and involved in the Canadian oil patch. Two tough things. Balance sheet is not as pristine as its peers. Valuation is very cheap though. He thinks it will see better days. If he were going to invest in an oil story, he would put money somewhere else.

He’ll be going to the Annual General Meeting this week, to be at the contentious Board election. The company has a fabulous asset base in Saskatchewan and in the United States. He thinks the stock would be a good buy under $10 and better under $9 with the oil price retreating later this year. Management has seen the pressure that they have to perform. Debt went up in 2017 and has to come down.

We've all be bitten by CPG. It's trading at the high end of the range and this current oil rally is actually not a fake start, but will continue. This is good for CPG. Then again, he's yet to see an activist jump on board a company and help it, which is happening to CPG now, so he's cautious.

There is a motion in front of shareholders to shake things up. It would not be his preferred choice in the sector. The downside is limited, but there is not much upside. He would be a luke-warm buyer. (Analysts’ price target is $13.40 )

Crescent Point Energy is in play at the moment, with a lot of shareholder activism. If you set that aside and look at the underlying value of the company, it is wildly undervalued. The company trades at 3.4 times Enterprise Value to Cash Flow (EV = Market Value + Debt) / Cash Flow. Compare that to booked reserves and they have proved, developed producing reserves (wells onstream) of 5. The price is so low because there is a historical dislike of some of the management team, partially because they issued paper in the past when they said they weren’t going to. That is an overhang on the share price. Between shareholder activism and the underlying price of oil, the company offers a low risk way to gain meaningful leverage to the current and future price of oil and also looks promising as an M&A target. This is a significant portion of his portfolio.

As a non-engineer in Toronto, he thinks it has fallen from grace and should be fantastic to own. It was the first company they bought when commodity prices fell – they got stopped out. He does not know why it has not turned around – he likes the business and management. It may take a while for the company to get fixed, but the investors have moved away from this whole space.

He is short but it is getting a bit long in the price. It looks expensive.

He covers Crescent Point but it is not yet on his buy list because he is looking for lower prices in Q2. The stock trades at half of book value with a strong dividend. The company traded over book value in every year from 2009 to 2017. The high water mark in 2017 was twice book value. Book is $16.75 (compared to a price on day of interview of $8.46), so the stock could easily double. If he is right about weakness in Q2, the stock could drop to $7. The price is leveraged to the price of oil. The balance sheet is good: debt is not a problem. Long term debt is $4 billion versus $9.2 billion equity. The company did deals when the market wasn’t expecting it and volume has not increased much, so there has been investor unhappiness. He thinks people have thrown the stock away and has a $16 1-year stock target.

A primarily light oil producer with assets in Utah. Since 2014 the shares have declined as oil prices have fallen. They issued a lot of equity during their acquisition phase. Debt to cash flow could be lower at almost 2 times, especially since crude oil prices might be near its short term peak. If oil prices hold or go higher, the stock could improve.

He covered much of their short position last week. He thinks they are turning it around, although it has not shown in the share value yet. They were paying out more in dividends than they had free cash flow. That is not happening lately at the recent oil price. He thinks the dividend is now safe and the company is trading at a more defendable multiple.

They have lingering long-term issues though it's no longer a hated stock. They don't grow enough to attract capital, at 7% with a dividend. Midcap oil companies: investors don't care about them. All such companies should stop drilling and buy back stock. CPG will likely sell some assets and re-deploy their cash.

As long as oil stays above $50, their dividend won't budge, but it won't grow either. They're spending their cash flow on exploration and development.

It deserves to be at a higher price. They just announced results where they are going to have a payout ratio. They will be operating within cash flow. The multiples were lower in 2003 than they are now. It could continue to go sideways.