Monday, July 23, 2018

Obsidian Energy Ltd

Sound bite for Twitter and StockTwits is: Cheap Resource Stock. From my stock price testing it looks like the current stock price runs from very cheap to reasonable. Any time a stock is very cheap, there is also lots of risk involved in holding the stock. On the other hand, there is lots of insider buying. See my spreadsheet on Obsidian Energy Ltd.

I do not own this stock of Obsidian Energy Ltd (TSX-OBE, NYSE-OBE) but I used to. I bought this stock as Maximum Energy Trust (MXT.UN) in 1998. In November 2001, there was a stock exchange and the stock became Ultimate Energy Fund. In June 2004 fund changed from Ultimate Energy Income Trust to Petrofund Energy. Petrofund Energy merged with Penn West in July 2006.

When I was updating my spreadsheet, I noticed that they had a new Chairman and also the other two directors I was following had also left. There is a lot of insider buying in the past year just as there was last year. In the past year Net Insider Buying was 0.26% of Market Cap and in the prior year it was 0.30%. You expect NIB to be around 0.01% to 0.02% of Market Cap.

I see a lot of red ink on my spreadsheets. This includes everything like Revenue, EPS, Cash Flow, Book Value, and stock value. This means that flows are lower or non-existent. They have also stopped their dividends. The last time a dividend was paid was in 2015. Analysts do not expect them to have earnings anytime soon, so there will not be any dividends anytime soon.

The Debt Ratio I do not like is the Liquidity Ratio. For 2017 it was 0.66. This means that current assets cannot cover current liabilities. Only if you include cash flow after dividends and current portion of long term debt does the ratio rise above 1.00 to a still low ratio of 1.32. So, to pay for current liabilities they must count on cash flow and rolling over of debt. This could be a problem in a recession.

The Long Term Debt/Market Cap Ratio is good at 0.42. The Debt Ratio is very good at 3.57 with 5 year coverage at 2.56. The Leverage and Debt/Equity Ratios are also quite good at 1.39 and 0.39 for 2017. The 5 year ratios are also good at 1.68 and 0.68.

The Total Return per year is show below for years of 5 to 22. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.

As you can see from the chart below, investors have not made money recently and only made money in the past due to the dividends.

Years Div. Gth Tot Ret Cap Gain Div.
5 0.00% -27.42% -31.78% 4.37%
10 0.00% -20.51% -27.77% 7.26%
15 0.00% -2.40% -15.07% 12.67%
20 0.00% 15.98% -14.47% 30.45%
22 0.00% 8.91% -13.25% 22.16%

The 5 year low, median, and high median Price/Earnings per Share Ratios are –0.66, -1.87 and -3.09. The corresponding 10 year ratios are -0.33, -0.78 and -1.81. The historical ratios are 6.14, 9.56 and 13.06. The only reasonable ones are the historical ratios. The current P/E Ratio is -5.04 based on a stock price of $1.36 and 2018 EPS estimate of -$0.27. You can not do any P/E Ratio testing with negative values.

I get a Graham Price of $5.89. The 10 year low, median, and high median Price/Graham Price Ratios are 0.46. 0.78 and 1.14. The current P/GP Ratio is 0.23 based on a stock price of $1.36. This stock price testing suggests that the stock price is relatively cheap. This is not a good test because of earning losses.

I get a 10 year median Price/Book Value per Share Ratio of 0.74. The current P/B Ratio is 0.33 based on a stock price of $1.36, Book Value of $2,102M and Book Value per Share of $4.16. The current P/B Ratio is some 56% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap. A stock is always considered cheap if it is selling below book value or a ratio below 1.00.

The problem with the book value is that it is sinking fast. The book value has declined by 25% and 14% per year over the past 5 and 10 years. The decline is slowing as the book value per share only declined by 4% in 2017 and so far this year by 3%.

I get an historical median dividend yield of 10.27%. This yield is very high because the stock used to be an income trust company. However, until they cut the dividends, the yield was still quite high. I cannot do a stock price test because the company currently has no dividends.

The 10 year median Price/Sales (Revenue) Ratio is 1.67. The current P/S Ratio is 1.62 based on 2018 Revenue estimate of $425M, Revenue per Share of $0.84 and a stock price of $1.36. The current P/S Ratio is some 3% below the 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.

When I look at analysts’ recommendations I find Strong Buy (1), Buy (4), Hold (5) and Underperform (3). The consensus would be a Hold. The 12 month stock price is $1.94. This implies a total return of 42.65% all from capital gains.

Yolanda Lovett on Simply Wall Street worry about some debt ratios. Troy Warner on MTL News Journal says this company has a Piotroski F-Score of 0.8 where a low score show a weak balance sheet. Matthew DiLallo on Motley Fool talks about this company selling some assets. See what analysts are saying on Stock Chase about this company. They are mostly negative about activist investors.

Obsidian Energy Ltd is an independent Canadian energy company focused on the exploration and production of oil and natural gas resources in Saskatchewan, Alberta, and British Columbia. Its web site is here Obsidian Energy Ltd .

The last stock I wrote about was about was Atlantic Power Corp (TSX-ATP, NYSE-AT) ... learn more. The next stock I will write about will be Dorel Industries Inc. (TSX-DII.B, OTC-DIIBF) ... learn more on Wednesday, July 25, 2018 around 5 pm. Tomorrow on my other blog I will write about Another Source of Income 4.... learn more on Tuesday, July 24, 2018 around 5 pm.

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. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

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