Opinions
Eric Nuttall
Tourmaline Oil Corp
TOU-T
COMMENT
Oct 11, 2019
Stock price when the opinion was issued
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Cold winter weather has been good for nat gas prices. Wild card is AI demand -- what's the sustainable fuel that can keep data centres running 24/7? It's natural gas. Over the next few years, a fortune will be spent building data centres. Hopefully, with new administration in Canada, this name can benefit from the added infrastructure.
Earnings this week, he expects big increase to special dividend. Nice place to collect a growing income stream.
Unfortunately, fatality overnight; will have only a short-term impact, weak today. Despite the name, a natural gas company. Trades at highest premium relative to peers. Management and resource depth are solid. Backdrop is bullish for Canadian natural gas producers, but he'd prefer other names.
He's a long-term natural gas bull; it's the fuel of the future, and LNG Canada is about to start. TOU has a good CEO and good inventory and pays a high dividend. That said, TOU is not his favourite nat gas stock though holds a lot of shares. TOU is more about dividends. TOU buys a lot of companies which creates an overhang and doesn't allow the share price to perform as well, so it lags its nat gas peers.
Nice recent production and FCF beats. High-quality company. Diversified marketing portfolio. Are we in the sweet spot for natural gas as TMX starts to come online and Canada starts to export LNG? He thinks the answer is yes. Trading in line with peers, nice production and FCF growth. Balance sheet's in good shape. Nice dividend. Payout ratio is 90%, pretty safe.
Buy when down. Safe to put some $$ in right now.
Harks back to his view that total return is important. Natural gas is up ~50% from a year ago. With LNG Canada coming on, anticipates nat gas prices improving materially through the end of the year. Business fundamentals are best in class. CEO has been buying shares. Not a lot of flash, but they know what they're doing and keep growing earnings per share.
Despite the name, Canada's largest natural gas producer at ~13% of the total. Likes its capital discipline and lean operating efficiency. 21% stake in TPZ. Early mover to secure market access to delivery hubs on US and Canadian West Coasts. Consistently able to get higher pricing than peers. Generates lots of cash.
Cargo shipping from LNG Canada (as soon as this weekend) will benefit the whole sector. Kitimat project has potential to meaningfully shift supply/demand balance of Western Canadian nat gas, due to Asian demand. Yield is 3.10%, and there are special dividends too.
Market Outlook TOU-T is planning to spin off some of their infrastructure into a royalty like offering, while retaining 80% of the value. Prior to this the stock was trading at all time lows and the market was giving zero value to the infrastructure they held. The company was trading at 3 times cash flow. The assets they are effectively selling are being valued at 9 times cash flow within the offering. This should remind people how undervalued this space is and there are self-adjusting opportunities that will "fix the funk" we see today. ARX-T has a similar 20% of its company in similar infrastructure. Once we get past the upcoming Federal election things should move forward. What a party says on the campaign trail and what happens in reality can be two very different things. The Liberals appear to support the TMX pipeline project in reality and it will ultimately get built, he says. 11% of our GDP in Canada comes from the energy sector.