Friday, November 13, 2015

Canadian Oil Sands

Sound bite for Twitter and StockTwits is: Hostile takeover bid. Canadian Oil Sands feels that Suncor is trying to buy them too cheap. Others feel that there is a chance this company will not survive if Suncor retracts it bid. See my spreadsheet on Canadian Oil Sands.

I do not own this stock of Canadian Oil Sands (TSX-COS, OTC-COSWF). I am reviewing this stock because when anyone talks about investing in Canadian Oil Sands, this is the stock that seems to be mentioned first. As with some other investment in oil companies, if the dividend is good, then it will vary according to the price of oil.

This is an oil company and its dividends have both gone up and down over the years. Most recently this year, the dividends have been cut by almost 86%. The current dividend yield is one of the lowest for this company at just 2 %. This historical low is 2.6%. In 2014 the company had one of its highest dividend yields at around 16% just prior to the dividend cut.

Since the company was formed in 1995, it has paid a lot in dividends. If you had bought this company 5, 10 to 15 years ago and paid a median price, dividends would have covered 19.2%, 74.1% and 300% of the cost of your stock purchase.

No one expects this company to have a good year in 2015. Analysts expect the revenue to drop by around 38%. They expect the EPS to be negative. They expect cash flow to fall by around 58%. If you look at the 12 month period to the end of 2014 and the 12 month period to the end of the third quarter, Revenue has fallen by 30%, EPS is negative and Cash Flow has fallen by 16%.

You cannot do the usual stock price valuations. First when the EPS is negative, you cannot do a P/E Ratio test. In 2016, the P/E Ratio is expected to be a round 62.13 and in 2017 it will fall to a still high but much more reasonable 18.73. However, estimates out this far can be expected to be way off the mark.

When I look at the 10 years Price/Book Value per Share Ratio I get a ratio of 3.09. The current P/B Ratio is a lot lower at 1.24. This stock price test suggests that the stock price is relatively cheap. However, we can probably expect a future drop in BVPS over the next while. BVPS was down by 5% in 2014 and by another 14% to the end of the third quarter in 2015.

The 10 year Price/Cash Flow per Share Ratio is 8.88. The P/CF Ratio for 2015 is expected to be around 15.29, a rather high value. This ratio is expected to fall to around 7.47 in 2016 and this starts to show that the stock may be relatively cheap.

The stock price has fallen a lot since its peak in 2009. The fall is around 18% per year. The current stock price is $9.94 and it has not been this cheap since 2004.

When I look at analysts' recommendations, I find Hold and Underperform recommendations. Most of the recommendations are a Hold and the consensus recommendation is a Hold. The 12 month stock price is $9.89. This implies a total return of 1.51% with 2.01% from dividends and a capital loss of 0.50%.

This article in the Financial Post talks about the hostile takeover bid from Suncor Energy and that the price of this stock will fall hard if Suncor retracts its bid. Andrew Walker of the Motley Fool thinks that there is a chance that the company will not survive if Suncor retracts its bid. (Note sometimes you have to go out and back into Motley Fool articles to get the full article.) There are comments from different analyst at Stock Chase.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

Canadian Oil Sands Trust provides a pure investment opportunity in the oil sands through its 36.74% interest in the Syncrude Project. Syncrude is an experienced oil sands operator, producing a high-quality crude oil for the past 30 years. With large, bitumen-rich leases located in the sweet spot of the Athabasca oil sands deposit and a fully integrated upgrading facility that produces 100% light, sweet crude oil, the quality of their Syncrude asset is very good. Its web site is here Canadian Oil Sands.

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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