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(A Top Pick July 22/13. Up 35.2%.) Management has surfaced value with their spin out of PrairieSky (PSK-T), sold Big Horn and acquired some property in Eagle Ford. Becoming much more exposed to liquids than to natural gas. Have done some extremely smart things with their asset base, as well as making some very strategic acquisitions. Good cash position of about $2.7 billion. Still has a long ways to go.
(A Top Pick July 22/13. Up 12.51%.) He keeps hoping to see a bit more out of Churchill. This company got into a lot of trouble 3-4 years ago when a lot of their construction projects had huge cost overruns. Those have mostly run through the system, and lately their backlog has been building. There will be an improvement in margins as the new backlog works its way through the system,. Thinks we can still see some fairly significant capital appreciation on this company.
Generally the airlines have done extremely well over the last year or so. Doesn’t like participating in the airline industry. Thinks they will be squeezed a little by fuel costs, particularly in Ontario with their proposed tax on jet fuel. Airlines in general have extremely high capital costs and are extremely expensive to run. This is not an area that he would be jumping into.
Feels the parts are worth much more than what the current share price is reflecting. Management has changed over the last 2 years. They are more focused on nearer-term profitable ventures and selling off what they consider to be more extraneous assets. They have a target of selling about another $2 billion of assets. There are rumours that Repsol is coming in looking at the company, or possibly select assets. It hasn’t really participated with a lot of the other energy companies. He is hoping to see some capital gains from here.
If yield is what you are looking for, this does not pay a dividend. However, it has had tremendous growth and is extremely well-managed. Has been watching this for some time, but on a valuation perspective, it is just a little bit more expensive than what he would like to see. If it were to pull back about 10%, he would very definitely be interested in it.
Just announced they were buying the consumer’s services division from Direct Energy, which now gives them direct access to consumers in Ontario. Largely involved with water heaters as well as running a sub-metering business. He estimates capitalization of the company is going to go from around $800 million to $1.1-$1.2 billion. This is a very accretive acquisition to cash flow, and he estimates it is going to be 22%-25%. This puts out the potential for dividend increases down the road. Dividend yield of 5.27%.
Very illustrative of what his position has been lately. Owned this for quite a long time and made a lot of money. Recently took some profits around current levels, trimming about half his position. Would have probably sold it all if he didn’t feel that it still had scope going forward. Still likes the company, and it will prosper going forward. If you own, consider taking profits. Recently announced an agreement with Schlumberger (SLB-N), which is going to open up some new markets for them.
Their biggest holding in Europe is a European bank, which had a part stumble recently. Also, have Great West Life (GWO-T). He would not be tempted to buy in at this level. If you can get it in the low $30’s, you would be getting a good deal. Thinks earnings are going to be in the neighbourhood of $3 this year, and maybe growing to $3.30 next year. ROE is around 14%. Trading at Fair Value.
This along with Eagle Energy Trust (EGL.UN-T) and Parallel Energy Trust (PLT.UN-T) are Canadian trusts that have operations in the US, mostly in Texas. This one and Parallel had big stumbles lately which pulled down Eagle a little. People are concerned a little bit about the dividends in all 3 cases. Yield of 8.5%.
Have a lot of respect for Prem Watsa and this company. He is certainly a value oriented investor. This is an insurance company, so he would really like to see them have a better combined ratio. The lines of insurance they are participating in can be quite volatile. If you are a very long-term investor, you could consider stepping in. Well-managed. Dividend yield of about 2%.
(A Top Pick July 22/13. Up 35.99%.) At over $100, he figures a split is going to have to come. Banks like to be available to the general investing public, as well as to institutional investors. Sells at one of the lower multiples.