**Quick Summary of Top CDN O&G Buys**
This is a summary of Eric Nuttal’s 45 minute BNN Segment on Friday, somewhat rearranged so his best ideas are at the top (as well as names I have bought or am still buying today).
Key quotes on Canadian O&G sector:
“Midcap space is complete abandoned, I am buying quality names, with a lot of inventory, a rock solid Balance Sheet trading at 15-20% FRee Cash Flow (FCF) Yields”
“Best value in the world is Canadian Energy Stocks”
“Trading desks are seeing the energy tax loss selling bottoming 2 weeks ago” (explaining why O&G stocks have rallied)
“In Canada Energy sector is 18% of TSX, in US, it is 4.5% of S&P 500” (more likely that generalists in Canada will come into sector)
Crescent Point Energy (Top BNN Pick)
Eric’s Top Picks
Crescent Point Energy (Top BNN Pick) CPG.TO
- Stock has bottomed for sure back in September (dr_airtime’s thoughts)
- Sold Midstream
- Doing buy backs
- Trading at 18% FCF yeirld for 2020 (this sounds like after the dividend)
- Trading at 2.7X EV/DACF. “Staggering” multiple per Eric.
- Can double just off multiple expansion.
- This is a go to name for institutions.
- $13 stock at 5X EV /DACF
- Operations in Southeast Sask so less exposed to depressed pricing from pipeline bottlenecks in Alberta
- Sold a property in Utah. Got a good price for the property.
- Team gets an A+ in 2019 per Eric. Should be rewarded
Tourmaline (Top BNN Pick) TOU.TO
- Normalized infrastructure for 9X EBITDA while trading at 3X EBITDA. Have $800mm in liquidiy now to have to acquisitions.
- Catalyst Rich .
- 10% FCF Yield for 2020 (sounds like after dividends)
- Mike Rose 6% of shares – 17mm shares. $240mm in value
- Buying because management is aligned with shareholders
- 3.3% yeild
- Pay a modest premium to liquidation value for the stock.
Baytex (Top Pick) BTE.TO
- +20% FCF Yield
- Underperformed Oil price by 60%, operationally no reason
- Plan is to use FCF to pay down debt
- 2021/2022 notes. Will roll in 2020 as high ye
- Trading at 1/3 of historical multiples
- Nice large Market Cap to attract institutions
- Has fallen off radar for people looking for oil beta
- 2.1X Debt/DACF, lower than Vermillion (top pick
- Eagle Ford is core play, results are better by 15-20% YoY.
MEG Energy MEG.TO
- #1 M&A target in Canada
- Suncor is trading at a multiple and could used paper to acquire
- Imperial Oil getting really cash taxable in 20 and 21 and MEG has $8Bn of tax pools! Could make sense.
- Trading at a 29% FCF Yield for 2020!!!! @ %60 and 17.50 differential
- Highest quality pure play oil sand properties
- 4X Debt/DACF so higher but they can use huge FCF to reduce debt
- $9 gets MEG to 10% FCF yield but stock is at $7.50 now.
- Dr_airtime: thinks there is more short term upside in other names so buy them for now near historic sector lows.
TORC Oil & Gas TOG.TO
- Sub $1Bn Canadian Midcap
- Paying a 6.9% dividend yield sustainable to $48 WTI (USD)
- Debt/DACF is only 1X!!!!
- Trading at 3.7X EV/DACF
- Chart has barely moved.
Painted Pony PONY.TO
- Nuttal bullish on gas for first time in years for same reasons others have laid out (declining production, lowest storage all time now). AECO could potentially get squeezed to a premium
- A lot of companies have hedged away exposure.
- Painted Pony is mostly unhedged! This is the levered play. (Andre
- ARC, Tourmaline and Birchcliffe are what Nuttal would own
Whitecap WCP.TO
- For all stocks, the dividend is sustainable at $48-50 WTI (USD). At USD 58-60+
- Whitecap can pay dividend, have 10% FCF yield after that, and hold production flat.
- 6.6% yield
- Getting Proven and Probable reserves for free
- Trading below 1P (Producing) reserves
ARC Resources ARX.TO
- It may look like you have missed the rally when ARC is up 40% in a month but there is huge upside still.
- Truly assets are “Top Tier” per Eric Nuttal
- 1.2X Debt/DACF low debt great balance sheet
- Eric had names trading at 25% or 30% FCF yield
- ARC has top tier assets
- Great mgmt and alignment
- 7.5% DVD yield is sustainable
- Optionality on developing “attache” or “apache” asset.
Birchcliff Energy BIR.TO
- Eric bought 18% lower than it trades today
- 60% exposure to AECO, 80,000 boepd producer in Q30-19
- 4% dividend
- FCF Yeild of 12% (after dividend) 16% before.
- Would like to see higher inside ownership.
- Market Cap CAD 654mm, but debt of CAD 644mm and TTM Debt/Funds Flow for 2019 tracknig for 1.9X
- Lots of chart upside though
- Mostly Natural Gas so exposure to higher AECO price
Peyto PEY.TO
- Levered natural gas
- Eric bought at 2.75
- Eric thinks there are better names.
- If you are really bullish on AECO this is a good way to play it.
- Dr_airtime owns. Question from caller at end of call so short reponse from Eric.
Stocks Eric isn’t so bullish on.
KELT (KEL.TO)
- CEO owns $60mm of stock
- Will look to monetize in 2020
- Core asset at “Enga” getting 6 months payouts
- Value of asset to put up to sale, could match Market Cap of company today
- Eric not that keen on them. Too small I think. Buy mid-caps.
Vermillion VET.TO
- 13% yield right now, plus a huge short interest. Short interest 14%!
- Market thinks sustaining capital is higher than what mgmt. is guiding
- Scotia has dividend sustainability at WTI USD $52/bbl. Many think higher.
- Eric doesn’t like because CEO compensation is high (52% raise and underperformed index)
- Eric doesn’t own any stocks where there isn’t alignment with management compensation. He doesn’t own Vermillion
Athabasca Oil ATH.TO
- Highest leverage if you believe in $60+ oil
- Eric couldn’t buy any stock at $0.50
- Buyers and Sellers strike on stock now.
- Proxy Statement to
- 20% FCF Yeild
- BS is good
- Debt maturing that they have to roll
- One of the best if you are a bull on oil
- Dr_airtime’s notes: I just skimmed last press release and it reads like they are in trouble. Stay away.
Surge Energy SGY.TO
- Eric has no position
- Comfortable with other names
- Buy TORC or Whitecap instead.
Cenovus Energy
- Cenovus
- 250,000 bbls of incremental takeaway is added
- Crude by Rail is expanding. May hit 550,000 boped by end of 2019
- For a large Cap, C
- 13% Free Cash Flow yield, delveragind
- Debt will get below $5Bn in 2020
- Dislocation in value and window is narrowing so Eric thinks Cenovus is on the aquisition radar (i.e. Suncor)
Cardinal Energy
- Perception that they have high abandonment liability
- He would rather own other names
Crew Energy
- Market Cap too low for most
- Balacne sheet more levered than most are comfy with
- Don’t buy, buy others
Suncor
- I wouldn’t own Suncor. “Worst bear market in history anyone has ever seen”
- Suncor hasn’t really gone down. Go to the midcap space
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