February 27, 2012
Bowood Energy Inc. (BWD-V,
.22)
SECTOR OUTPERFORM; Revised Target: (-
.20)
.40; Risk: SPECULATIVE
Strategic Alternatives Process Being Implemented
- Strategic review process implemented. Bowood is exploring opportunities including a corporate sale, merger, recapitalization, property sale, or some other transaction to optimize shareholder value. Although there are no guarantees that any transaction will occur, we believe that there should be a significant amount of interest in the Company’s opportunity base in the Alberta Basin Bakken oil play. Potential acquisitors already in the play include TORC, Murphy, Shell, DeeThree, and of course Legacy (Bowood’s partner and the operator of the joint lands).
- Our target has been adjusted to reflect land value. Our previous target was related to a combination of reserve NAV value (
.10 per share) and risked upside from drilling horizontal Alberta Bakken oil wells. We believe that potential acquirers will likely focus on land value at this stage in development. Bowood has 110,000 net acres of land and at $800/acre (rough average value – crown sales have been much higher and lower than this over time) the Company’s land has a current value of
.30 per share.
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Disclaimers
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Analyst Certification
I, Geoff Ready, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
Important Disclosures
Of the companies included in the report the following Important Disclosures apply:
- Haywood Securities, Inc. or one of its subsidiaries has received compensation for investment banking services from Bowood Energy Inc. (BWD-V) in the past 24 months.
Other material conflict of interest of the research analyst of which the research analyst or member knows or has reason to know at the time of publication or at the time of public appearance:
Rating Structure
Each company within analyst’s universe, or group of companies covered, is assigned a rating to represent how the analyst feels the stock will perform in comparison with the other companies, in that specific sector, over the upcoming 12 month period.
SECTOR OUTPERFORM – Haywood’s top rating category. The analyst believes that the security will outperform its sector. Furthermore, the shares are forecast to provide attractive returns measured against alternative investments when considering risk profiles. The rating carries a minimum total return threshold of 15% for equities and 12% for trusts. The rating applies to companies that have tangible underlying assets that give a measure of support to the market valuation. The rating category considers both the absolute and relative values in assigning the highest rating on the security.
SECTOR PERFORM – The analyst believes that the security will trade with tight correlation to its underlying sector. Furthermore, the target price (together with any anticipated distributions) is at or above the market price, and forecast risk-adjusted returns are attractive relative to alternative investments.
SECTOR UNDERPERFORM – Investors are advised to sell the security or hold alternative securities within the sector. Stocks in this category are expected to underperform relative to their sector. The category also represents stocks with unattractive forecast returns relative to alternative investments.
The above ratings are determined by the analyst at the time of publication. On occasion, total returns may fall outside of the ranges due to market price movements and/or short term volatility. At the discretion of Haywood’s Management, these deviations may be permitted after careful consideration
TENDER – The analyst is recommending that investors tender to a specific offering for the company’s stock.
RESEARCH COMMENT – An analyst comment about an issuer event that does not include a rating or recommendation.
UNDER REVIEW – Placing a stock Under Review does not revise the current rating or recommendation of the analyst. A stock will be placed Under Review when the relevant company has a significant material event with further information pending or to be announced. An analyst will place a stock Under Review while he/she awaits sufficient information to re-evaluation the company’s financial situation.
COVERAGE DROPPED – Haywood Securities will no longer cover the issuer. Haywood will provide notice to clients whenever coverage of an issuer is discontinued.
Haywood's focus is to search for undervalued companies which analysts believe may achieve attractive risk-adjusted returns. This research coverage on potentially undervalued companies may result in an outweighed percentage of companies rated as Sector Outperform. Management regularly reviews rating and targets in all sectors to ensure fairness and accuracy.
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Risk Profile Parameters
SPECULATIVE: – Investment for risk accounts only. Companies within this category carry greater financial and/or execution risk. All junior/venture companies that carry great financial and/or liquidity risk will be tagged “SPECULATIVE”. A stock indicating a SPECULATIVE risk is determined from sector specific criteria outlined below listed below.
Risk Profile Parameters – Oil and Gas Sector
Forecast Risk:High – Haywood forecasts are below guidance. The Company has a history of missing targets and/or Haywood expects guidance to be lowered. Limited hedging increases commodity risk beyond peers. To raise expectations requires higher commodity prices or production that is ahead of guidance. Moderate – Haywood forecasts are generally in line with guidance. The Company has a history of meeting or exceeding guidance. Forecasts are consistent with current commodity pricing and production guidance. Hedging practices are in line with peers. Low – Haywood forecasts exceed guidance. The Company has a history of meeting or exceeding guidance. Forecasts allow for modestly lower commodity pricing or production levels. Commodity hedging lowers volatility relative to peers.
Financial Risk:High – The capital expenditure program in the current year or the next year of the forecast is not fully funded but requires additional debt and/or equity financing. This categorization does not necessarily predict whether the additional funds will be raised. Moderate – The capital expenditure program in the current year or the next year is fully funded with cash flow and limited debt. Low – The capital expenditure program in the current year or the next year is fully funded with cash flow and no new debt.
Political Risk:High – Properties are located in an area with limited petroleum industry activity or infrastructure. An environment unfriendly to the industry makes obtaining permits to drill or produce hydrocarbons challenging. Significant government or local opposition exists. Moderate – Properties are located in an area with minimal petroleum industry activity or infrastructure. An environment friendly to the industry makes obtaining permits relatively straightforward. All levels of government are considered indifferent to hydrocarbon activity. Low – Properties are located in an area with established petroleum exploration and development activity. Oil and gas Production Sharing Agreements or Exploration Permits are in hand. Government at all levels supports the sector.
Valuation Risk:High – The current valuation is at the high end of historic levels and/or at a premium to peers. The valuation reflects continued production growth and/or continuing strong commodity prices or further appreciation. Where applicable, the market capitalization exceeds the NAV by more than 30%. Moderate – The current valuation is within historic ranges and generally consistent with peers. The valuation reflects reasonable production growth and/or commodity price appreciation. Where applicable, the market capitalization exceeds the NAV by 15% to 30%. Low – The current valuation is at the low end of historic ranges and/or at a discount to peer valuations. The valuation reflects limited production growth and/or no commodity price appreciation. Where applicable, the market capitalization exceeds the NAV by less than 15% or falls below the capitalization.
Distribution of Ratings (as of February 27, 2012)
Haywood’s current rating structure (outlined above) does not correlate to the 3-tiered BUY, HOLD, SELL structure required by the FINRA. Our ratings of Sector Outperform, Sector Perform and Sector Underperform most closely correspond to Buy, Hold/Neutral and Sell respectively however, as described above, our assigned ratings take into account the relevant sector.
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Distribution of Ratings
|
IB Clients
|
|
|
%
|
#
|
(TTM)
|
|
S/O
|
81.1%
|
103
|
100.0%
|
|
S/P
|
1.6%
|
2
|
0.0%
|
|
S/U
|
3.9%
|
5
|
0.0%
|
|
T
|
2.4%
|
3
|
0.0%
|
|
UR (S/O)
|
0.8%
|
1
|
0.0%
|
|
UR (S/P)
|
0.0%
|
0
|
0.0%
|
|
UR (S/U)
|
0.0%
|
0
|
0.0%
|
|
dropped (TTM)
|
10.2%
|
13
|
0.0%
|
Price Chart, Rating and Price Target History (as of February 27, 2012)
S/O: Sector Outperform; S/P: Sector Perform; S/U: Sector Underperform; T: Tender; U/R: Under Review
Source: Haywood Securities Inc. and Capital IQ
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