Thursday, December 5, 2013

Crescent Point Energy Corp.

I do not own this stock Crescent Point Energy Corp. (TSX-CPG, OTC-CSCTF). I got this idea to look into this stock from another blogger, My Own Advisor and his November 2012 blog entry on great Canadian dividend paying stocks. See his site here. I also noticed that several people at the Toronto Money Show of 2013 mentioned this stock.

The dividend is still good and shareholders have made good returns over the past 5 and 10 years to the end of 2012 and to date. The dividend yield is still quite good at 6.79%. However, dividend increases are non-existent and I would assume because the DPR for earnings will not happen any time soon. I still do not like companies that cannot increase their dividends. If the dividend is high, I only require increases at the rate of inflation and this company has not raised dividends since 2009

When I first reviewed this stock, I did not like because of the fact it cannot raise dividends, I felt that the Liquidity Ratio was much too low as was the Return on Equity. At the end of 2012, the situation had not changed. The Liquidity Ratio and ROE are pathetic. I do not see why people like it.

The stock is no longer an income trust and the Dividend Payout Ratio for earnings is important. Yes, I know that people have told me that the only DPR that is important is the one for cash flow. I am of the opinion that both are very important.

For DPR I am using actual dividends paid compared to actual net income and cash flow rather than per share values. The problem on this stock is that with rapid changes in outstanding shares it is difficult to know what level of outstanding shares to use in these calculations. I know that some analysts take into consideration the actual money going out the door for dividends, but excluding the DRIP dividend payments. I think that this just makes the DPR look better without any real improvements in the DRP.

The DPR for earnings in 2012 was 183% and this is not good. I estimate that the DPR for earnings will move to 127% in 2013 and this is still not good. The DPR for cash flow was for 2012 was 22% and this is probably just fine for an oil and gas company. I estimate that the DPR for cash flow will be even lower in 2013 at around 17%.

Another thing is that oil and gas producers that have good yields tend to vary the dividends over the years because of changes in the price of oil and gas. This company was increasing the dividends until 2009 and since then they have remained flat.

Outstanding shares have increased by 27% and 41% per year over the past 5 and 10 years. The shares have increased due to stock options, DRIP and share issues. Revenues have increased by 33% and 60% per year over the past 5 and 10 years. Revenue per share has increased at 5% and 13% per year over the past 5 and 10 years. So revenue growth is reasonable to good.

EPS is up by 7.4% per year over the past 5 years using the 5 year running average. 5 years ago the company had an earnings loss, so it is not possible to calculate a 5 year growth rate. EPS is down by 6.6% per year over the past 10 years. The problem with EPS is that it is all over the past with some years being good and other not so much. It tends to go up and down a lot.

Looking at cash flow, I calculate that they have increased by 6% and 15% per year over the past 5 and 10 years. Looking at the 5 year running average the increase over the past 5 years is at 12% a year. So cash flows have had nice growth.

As I had pointed out above, the Return on Equity is pathetic and has been so or most years. The ROE at the end of 2012 is just 2.2%. Well, at least the ROE on comprehensive income is close, coming in at 2.1%.

Also, as I had pointed out above, the Liquidity Ratios are very low, with the one for 2012 at 0.47 and the current one at 0.46. The problem with this is that in recessions, companies with low Liquidity Ratios are the ones that tend to get into trouble. For the ROE at the end of 2012, if you add in cash flow after dividends, the ratio becomes 1.20. This is a better ratio but still low. Also, you must ask yourself, how dependable is the cash flow?

Sorry, I still do not see why anyone would like to buy this stock. I agree with Genevieve Roch Decker of the Money Show in 2013 in that better money at less risk is available in oil and gas infrastructure than in oil and gas producers. In this company I see the risk/reward is out of whack. See my spreadsheet at cpg.htm.

This is the first of two parts. Second part will be posted on Friday, December 06, 2013 and will be available here.

Crescent Point Energy Corp. is a conventional oil and gas income trust with assets focused in properties comprised of light oil and natural gas reserves in Western Canada. They acquire, exploit and develop high-quality, large resource-in-place assets and manage risk through a solid hedging program and a clean balance sheet. Its web site is here Crescent Point Energy.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

1 comment:

  1. Good write-up. Cdn. stocks are a mine for growth

    ReplyDelete