Ryan Irvine (Keystone Financial) Tamarack Valley Energy (TVE:TSX) vs. Pine Cliff Energy (PNE:TSX)
Slide 1
YSOT – Came in from Trevor via email. And he asked for us to choose between one or the other to reveiew between Tamarack Valley Energy (TVE:TSX) vs. Pine Cliff Energy (PNE:TSX)
but I thought that I would just go ahead and compare the two businesses.
Pinecliff is the orange line here, and Tamarack valley is the blue line. But first, lets look into Tamarack.
Slide 2
(TVE:TSX)
Price: $3.64
Market Cap: $2.025 Billion
Forward Dividend Yield: 4.1%
Tamarack is an oil and gas exploration and production company focused primarily on Charlie Lake, Clearwater, Cardium and Enhanced Oil Recovery plays in Alberta. With production at about 50% Heavy Oil, 25% Light Oil, and Gas and NGL’s making about 25%.
And the company initiated a dividend in January 2022.
Slide 3
Looking at Tamarack’s financials which were reported in March of 2023.
- Revenue for Q4 2022 was up 74% primarily due to an increase in production.
- Adj. Funds Flow per share was up 16% (also because of production increases)
- EPS was down 74%.
- TTM Payout Ratio of 15%.
- Net Debt of $1.356 Billion.
- Net debt to Adj. Funds Flow of 1.8x.
Now moving on to Pine Cliff.
Slide 4
(PNE:TSX)
Price: $1.30
Market Cap: $456.2 Million
Forward Dividend Yield: 10.0%
Pine Cliff is engaged in the acquisition, exploration, development and production of natural gas and oil in the Western Canadian Sedimentary Basin. The company primarily produces Natural Gas which is expected to be 85% of production in 2023.
And the company initiated a dividend in June of 2022, so just a few months after Tamarack.
Slide 5
Looking at Pine Cliff’s financials which were reported in May 2nd 2023.
- Revenue Q1 2023 was down 18% primarily due to a reduction in the price of natural gas.
- Adj. Funds Flow per share and EPS were down 33% and 80%, respectively.
- TTM Payout Ratio of 36%.
- Net Cash of $58.1 Million.
Slide 6
Now this wouldn’t be a KeyStone video if we didn’t warn listeners of the risk that volatile commodity prices can bring to a company. And if we look at this chart, we can see that both of these companies are highly correlated to the price of energy, with Pinecliff as the orange line Tamarack valley is the dark blue line and the light blue is West Texas Crude Oil Futures.
Slide 7
I think this is difficult to compare the two because they really aren’t direct comparables but I thought I would highlight both of them side by side anyways.
So looking at growth going into the 2023 fiscal year, Tamarack is guiding toward better production growth…. Whereas Pine Cliff expects annual average production to remain flat or even come in slightly lower for 2022.. So my thought here is that if energy prices do continue to come down, at least Tamarack may still post revenue and maybe even earnings growth for the year… depending on how the increase In production and change in energy prices balance out.
Now Pine Cliff does pay a better dividend yield of 10%, albeit at the expense of a higher payout ratio.
Pine Cliff trades at a lower valuation of 2.6x EV/AFFO, but this is expected given its smaller size and less growth anticipated into 2023.
Looking at the balance sheet, Pine Cliff’s is superior with a net cash position, compared to Tamarack’s net debt position. But I don’t think that Tamarack’s balance sheet is by any means “overlevered”, but it is something to monitor.
Ultimately, IMO it is really a toss-up between the two…. And might come down to a growth vs. dividend income investment case. As if I was looking for income, I would likely go with Pine Cliff due to the higher yield and cash rich balance sheet. But it just has limited production growth anticipated into 2023 which could be a concern.