Opinions
Swanzy Quarshie
Tourmaline Oil Corp
TOU-T
COMMENT
May 16, 2016
Stock price when the opinion was issued
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Being affected by volatility in energy prices. Not a large company like a SU or CNQ that can weather the storm. He owns it more as a speculative play. OK as a 1-2% position maximum as long as you have a diversified portfolio. No fundamental issues, still thinks poised for growth long term. Needs to continue ramping up production.
Quality name. Largest player in nat gas in Canada, with the largest reserves and the lowest cost. Top of the environmental sustainability ratings. We just built a big gas export terminal. Natural gas will power AI for at least 10 years until nuclear can get more established. Outlook for gas is strong. Lots of gas around, so pricing may not be that good but volumes will increase nicely. Yield is 3.44%.
(Analysts’ price target is $75.00)One of his basic tenets is that if a stock isn't behaving the way you think it should based on what you think you know, then assume you might be missing something. You need discipline around selling a position. He wants to own the leading companies fundamentally and technically.
We are in a seasonally weak period for gas; wait for that to firm up before putting $$ to work. In early spring he was 12% energy, now down to 6%. TOU trading better than only 19% of companies in the S&P, relatively weak. Breadth in energy sector has been weak. Will turn around at some point, but can't say when.
A few of her clients own it. It follows the seasonal momentum in oil and gas which means it is subject to commodity price volatility. It is Canada's largest natural gas producer, has strong free cash flow and low debt. It is oversold and should be OK for a value play but she prefers CNQ instead.
Temperatures are starting to moderate, and nat gas prices are down. Overproduction in US. Ramp-up of LNG Canada slower than expected, but should be picking up.
She's actually buying more ARX for clients, not trimming. Embedded growth via inventory through reserves. Likes that a lot of its prices are hedged to higher international gas prices (instead of Canadian). Doesn't need to acquire to fund growth, whereas TOU does.
If she were going to own 2 names, she would also own TOU. But she doesn't. ARX is first in the pecking order. If you have the patience perhaps hold onto TOU a bit longer, as we are getting into the colder months.
It sold off because it is being punished by short term investors for long term thinking. It is increasing its capex for the next five years which will result in accelerating cash flow in 2030 and 2031. Investors want companies to return capital to shareholders now but not much has been happening with many of them. Tourmaline has strong management so you could step in for the long term. It has been able to grow and return capital to shareholders but it will be less now with the increased capex.
He has a small position. Chart shows basing since 2023. Thinks it will do quite well for investors; as to when, he's not sure. Great balance sheet. Well run, and he's convinced it'll be taken out one day. So hold on and get rewarded someday.
If it breaks below $50 or so, will probably end up around $40-45.
At the annual meeting in June, what should shareholders pay most attention to? Management is quite bullish on natural gas, so she would question them on that. Their cash flow projections are based on higher natural gas prices, so if they don’t get the higher prices, how do they close the funding gap between their funded CapX and the expected cash flow. She would also inquire about their Charlie Lake oil play, a very interesting play. They’ve just spent some capital there and can ramp up production quite quickly. She owns a little because of their gas liquid exposure.