Trican Well Service Ltd. (TCW.TO)

The resource service sector in Canada is quite tough right now. Well activity is way down. We have come off historic highs for drilling. That is both bad and good. Like most cyclical sectors, that is when you want to buy. The number of rigs in activity right now is historically very low. We are starting to see an increase in oil activity. This company has done a lot to improve its balance sheet. It is better positioned now to weather the storm.

An energy services name. Energy services companies like drilling companies assist oil companies by taking on a function that used to be part of the oil companies, but were outsourced on the last downturn. A good company, but it is going to be tough sledding because it looks like oil has hit a bit of a ceiling in the low $50 range, and is now trading in the $48 range. Once there is a bit of a run in oil prices, this will snap back quickly.

From a valuation perspective, looking at their current ability to generate cash flow, it is not great. It is over levered. When the oil patch slows down, service companies almost go to zero. However, this is one of those stocks that is really cheap on its core replacement value, so Price to Book trades at just a partial multiple of its replacement value. They’ve been doing all the right things in terms of giving themselves survivability. Just did an equity deal. Have a handful of supportive long term shareholders, who keep selling assets, which they seem to be balancing reasonably well, giving themselves another chance at the next cycle. Wilkes Brothers now owns 18% of the company, and there is always a chance they may take in the rest of the shares.

Really cheap on a Price to Book basis. Trading at 3X BV. Has a lot of debt which they need to deal with. They are ultimately going to need to do some kind of transaction such as selling assets or issuing shares to get their balance sheet back on side.

(Market Call Minute.) Too binary. They have significant financial hurdles over the next two quarters. Either the stock is going up a lot or it is approaching zero.

Energy services is the more up and down sector in commodities. There are more wells being drilled in North America, so this company’s utilization should be going up. Currently North American rigs are down to about a 3^rd of what they were last year, and that is going to hurt activity levels. If you are trying to play a recovery, these stocks will have the most bang for your buck from these levels, but it is still going to be a pretty tough road and he would steer clear.

Technical support was well broken in 2014. Since then it has been in a down trend. Don’t catch that falling knife. He would wait for a base; three times bouncing off a base.

A leveraged play on the oil and gas companies. They have to do more for less. When you get a turn on the oil price, these are one of the guys that are a warrant on the industry. You have to do it at the right time.

Trican (TCW-T) or Calfrac (CFW-T)? This one is days away from tripping covenants, so they have to renegotiate with their debt holders. Have negative EBITDA so their debt to cash flow is infinite right now. A really, really, really tough situation to be in. If they can renegotiate, you could see the stock increase materially, but if not there may be little equity value in the company. His preference would be Canyon Services (FRC-T).

She is not buying service names right now.

The industry is in a down turn, the earnings are not doing that well, spending patterns are not very good, and some people are concerned they will have a debt issue going forward. He does not know why you would want to own any energy services companies. Producing companies at least have the cash flow from producing wells.

This really got beat up pretty badly as the drilling industry slowed down. Had a high of $17.56 and is now $3.75. Trading much below BV of $8.63. The drilling industry is not going to recover until the financial healths of companies recover. His bet is that it is probably going to see lower prices. Feels the stocks will get back over BV once the industry turns in Q3-Q4.

It is at a multiyear low and was downgraded today by TD. The underperformers are really underperforming. Some may not survive. Don’t bottom fish here. It is lower than during the financial crisis.

The service companies and frackers & drillers: A good time to dip your toe into them. We need to see some clarity. He prefers Canyon (no debt) and CFW-T over this one, which he has been nibbling at.

Prefers CFW-T. Doesn’t think they have that much down turn so stick with it.