Friday, February 27, 2015

ARC Resources Ltd.

I do not own this stock of ARC Resources Ltd. (TSX-ARX, OTC-AETUF). When TFSA first came out, this stock was recommended for this account as it was an income trust at that point and most of the distributions were taxable. This stock is no longer an income trust and the distributions are now dividends and taxed as normal Canadian dividends.

When this company decided to go convert to a corporation, it reduced its dividends over a two years period by almost 65%. Since that time the dividends have been flat. Prior to that time the dividends did grow, but they were variable as they decreased and well as increased. This is rather common practice for oil companies.

The dividend yield is current quite good at 4.96%. However, I doubt the current dividend will go up anytime soon as the price of oil has dropped considerably lately.

The stock price hit a high in mid-2014 and has been basically going down since then. The 5 and 10 year total return on this stock was 3.82% and 5.63% per year with 4.81% and 6.55% per year from dividends and a capital loss of 1.00% and 0.92% per year.

The outstanding shares have increased by 6.2% and 5.6% per year over the past 5 and 10 years. This makes the per share values the ones to pay attention to.

Revenue per Share is up by 9.8% and 3.1% per year over the past 5 and 10 years. The company still reports on distributable cash flow and this is up by 10.9% and 3.8% per year over the past 5 and 10 years. EPS has been quite volatile and is up by 4.6% and down by 0.9% per year over the past 5 and 10 years. However, if you look at 5 year running averages, EPS is down by 15% and 4.2% per year over the past 5 and 10 years.

The cash flow per share is up by 9.9% and 3.7% per year over the past 5 and 10 years. However, CFPS is also quite volatile and is down by 3.8% and up by 2% per year over the past 5 and 10 years if you use 5 year running averages.

In 2014 was the first year in the last 5 years when the Return on Equity was above 10%. The ROE for 2014 is at 10.7 and it has a 5 year median of 8.2%. The ROE on comprehensive income is the same as that for net income. This suggests that earnings are of good quality.

One problem is the low Liquidity Ratios and the company's dependence on cash flow to fund current liabilities. The Liquidity Ratio for 2014 is 0.74. This ratio also has a 5 year median of 0.74. When this ratio is lower than 1.00, it means that current assets cannot cover current liabilities. If you add in cash flow after dividends, the ratio becomes 2.49 and it has a 5 year median of 1.98. This is certainly a weakness.

The Debt Ratio is good and 2.28 and this ratio has a 5 year median of 2.46. The Leverage and Debt/Equity Ratios are also good at 1.78 and 0.78 with a 5 year median of 1.71 and 0.71.

When I look at analysts' recommendations I find Strong Buy, Buy Hold and Underperform. The vast majority of the 19 analysts give this stock a Buy rating. The 12 month consensus stock price is $28.10. This implies a total return of 21.32% with 16.26% from capital gains and 4.96% from dividends.

Sound bite for Twitter and StockTwits is: oil and gas company with steady div. At least for the next while, it looks like the dividend is holding. Many analysts see negative earnings for this year. Everyone sees earnings dropping. This is hardly surprising since oil prices have dropped. See my spreadsheet at arx.htm.

This is the first of two parts. The second part will be posted on Monday, March 2, 2015 and will be available here. The first part talks about the stock and the second part talks about the stock price.

ARC Resources Ltd. is one of Canada's leading conventional oil and gas companies. Its focus is on acquiring and developing long-life oil and gas properties across western Canada. Industry: Oil and Gas (Oil and Gas Producers) Its web site is here ARC Resources.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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