Monday, May 30, 2016

Ensign Energy Services

Sound bite for Twitter and StockTwits is: Probably cheap and risky. I think that this is still a great company, but it did not do well in 2015 and the oil and gas industry will have to do better for this company to do better. I think that they would be wise to cut dividends until things improve. However, if they did that the stock price would certainly get more beaten up. See my spreadsheet on Ensign Energy Services.

I do not own this stock of Ensign Energy Services (TSX-ESI, OTC-ESVIF), but I used to. I bought this stock in June 2012. Stock is a good one and was rather cheap in June of 2012. I sold this stock in December 2014 to buy Mullen Group (TSX-MTL, OTC-MLLGF) instead. I know I would be selling Ensign at a loss, but I also could buy Mullen cheaply. I wrote amount this at the time and the blog entry was called Ensign and Mullen.

The thing I really did not like about Ensign was the very low Liquidity Ratio. It was often below 1.00. This means that the current assets cannot cover current liabilities. It makes a company vulnerable in bad times. It could raise it over 1.00 to 1.47 if you add in cash flow after dividends. However, this company is tied to the oil and gas industry, so you have to wonder how solid the cash flow was. Also, the preferred Liquidity Ratio value is 1.50 or above.

At the end of 2014 the Liquidity Ratio for Ensign was 1.47 and for the financial year at the end of 2015 it is 1.77. So it is doing better in the one big area I did not really like.

Ensign did raise it dividends again in 2015, but it was a very low increase at 2.1%. However, I do not believe that they cannot afford to pay dividends. In 2014 the company paid out 102% of earnings in dividends. There was an earnings loss in 2015, so dividends could not be covered.

Analysts do not expect positive EPS from 2016 to 2018 inclusive, so this makes having a dividend difficult. This would suggest that the dividend is at risk. However, analysts do think that CFPS could easily cover dividends with a DPR of around 35% over the next while. The DPR for CFPS for 2015 was 18%.

Analysts expect both Cash Flow and Revenue to decline again in 2016, but start to recover in 2017. Revenue is expected to drop some 37% and Cash Flow is expected to drop some 49% in 2016. For the 12 months ending in March 2016 compared to the 12 months to December 2015, Revenue has dropped 14% and Cash Flow has dropped 22%. Comparing the first quarter of 2015 and the first quarter of 2016, Revenue is down by 42% and Cash Flow is down by 59%.

It is not possible to do any Price/Earnings per Share Ratio stock price testing as there was an earnings loss in 2015 and loses are expected to continue to 2018, inclusive. You have a similar problem with the Graham Price. My last Graham Price calculation gave one of $11.78 which would give a P/GP Ratio of 0.60 based on a stock price of $7.16. That suggests a relatively cheap stock price.

The stock price testing using Dividend Yield also has problems as I think that dividends are at risk. However, the current Dividend Yield is 6.70% based on dividends of $0.48 and a stock price of $7.61. The historical median Dividend Yield is 1.76% and you have an historical high Dividend Yield of 4.65%. Clearly, this currently says that the stock price is relatively cheap. However, what happens if dividends are cut?

The 10 year median Price/Book Value per Share Ratio is 1.37. The current P/B Ratio is 0.56 based on BVPS of $12.85 and a stock price of $7.16. This stock price testing suggests that the stock price is relatively cheap. That is because the current P/B Ratio is some 59% lower than the 10 year P/B Ratio and because the P/B Ratio is below 1.00. If a stock is selling below its Book Value, it is considered cheap.

I get a 10 year median P/S Ratio of 1.48. The current P/S Ratio is 1.22 a value some 18% lower. For the stock to be relatively cheap, you need a current P/S Ratio 20% lower. So this testing is just saying the stock price is relatively reasonable and below the median. The current P/S Ratio is based on Revenue estimate for 2016 of $894M, Revenue some 36% lower than the Revenue in 2015. I would suspect that Revenue will drop significantly in 2016.

I get a 10 year Price/Cash Flow per Share Ratio of 7.09. The current P/CF Ratio is 4.69 based on a stock price of $7.16 and CFPS estimate for 2016 of $1.39. Analysts expect Cash Flow to drop in 2016 and I think that this is a reasonable expectation. The current P/CF Ratio is some 27% below the 10 year median ratio and this suggests that the stock price is relatively cheap.

When I look at analysts' recommendations, I find Buy, Hold and Underperform Recommendations. The vast majority of the recommendations are a Hold and the consensus is a Hold. The 12 month stock price consensus stock price is $7.63. This implies a 13.27% total return with 6.56% from capital gains and 6.70% from dividends.

Sylvia Delisle in the Risers and Fallers blog talks about recent analysts' recommendations on this stock. Jeffrey Jones talks about Edward Murry the Chairman of the Board for Ensign. Dan Healing of Calgary Herald talks about Ensign retiring 21 drilling rigs as slowing oilfield activity further shrinks industry.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see that report here and here..

The last stock I wrote about was about was Goeasy Ltd (TSX-GSY, OTC-EHMEF)... learn more . Tomorrow on my other blog I will write about my Updated Spreadsheets... learn more on Tuesday, May 31, 2016 around 5 pm.

Ensign Energy Services Inc. is an industry leader in the delivery of oilfield services in Canada, the United States and internationally. They are one of the world's leading land-based drilling and well servicing contractors serving crude oil, natural gas and geothermal operators. Its web site is here Ensign Energy Services.

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. I have three blogs. The first talks only about specific stocks and is called Investment Talk . The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

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