Investment thesis on LTSInteresting is to see the Motley Fool quick comparison between LTS to CPG, when touting WCP as an investment. Here is a statement from the Motley Fool:
Whitecap, while not the cheapest of its peers on the basis of its enterprise value of eight times EBITDA and 17 times reserves, certainly offers value for investors when its solid balance sheet and high dividend yield are taken into account.
Fellow Canadian intermediate oil producer Lightstream Resources (TSX:LTS), while having an enterprise value of a mere five times EBITDA and 16 times its oil reserves, has a significantly weaker balance sheet. Even after slashing capital expenditure and its dividend by half in late 2013 it still has worrying debt-load of more than three times cash flow.
Large-cap light oil producer Crescent Point Energy (TSX:CPG)(NYSE:CPG) continues to trade at a premium, with an enterprise-value of nine times EBITDA and 28 times its oil reserves, making it appear expensive in comparison to Whitecap.
The statement comes from the following article:
https://www.fool.ca/2014/03/18/4-reasons-to-buy-whitecap-resources/?source=c75yhocs0040001
This statement captures why LTS is a compelling bottom fish investment right now to make easy money before the market wakes up to it. Here is why:
Here is what LTS said in the press release regarding 2014 Guidance:
Our revised guidance results in slightly lower production levels, however, we are forecasting an increase in funds flow from operations to approximately $650 million for the year (a 7% increase relative to the midpoint of our guidance). Based on these forecasts, our sustainability ratio (pre-acquisitions and dispositions) is expected to be approximately 100%, an improvement from 106% previously.
Here is what they said about the sustainability ratio for 2013:
In 2013, we declared $183 million in dividends, reflecting a 27% payout ratio of funds flow from operations, of which $134 million were paid in cash reflecting a 20% payout ratio. In November 2013, we reduced our dividend from $0.96/share to $0.48/share per annum and eliminated our dividend reinvestment program and share dividend program to improve our long-term sustainability. During the year we improved our sustainability ratio (cash flow out prior to acquisitions and dispositions, compared to cash flow in) to 127% (2012 - 173%).
Notice a couple of key items:
1. Their definition of sustainability ratio is cash flow out compared to cash flow in.
2. They guided 100% for 2014 meaning they have the cash flow to cover all their financial obligations, being interest payments on debt, dividend, and cap ex etc..
3. This means the fear over managing debt and dividend is overblown, this is fixed next year.
4. Notice the dramatic improvement in their sustainability ratio from 173% in 2012, to 127% in 2013, to 100% in 2014. You must at least give Management some credit for getting this part right. Do not under estimate this dramatic improvement.
So given this, the only catalysts for the LTS share price to rise from the bottom is:
1. Progress on asset sales and therefore debt reduction.
2. They meet their 2014 guidance (note: they did meet 2013 guidance for FFO and cap ex).
If they simply do this, as they say they will, the current 5x EBITDA multiple could easily expand to 6x and then on to 7x, while you collect a nice didvidend.
So now, at these levels, is where the easy money is for LTS, while there is still fear in the name, but knowing there has been underlying improvement regardless of the negative sentiment and some key actions have already been taken to right the ship despite all the criticism. It is in these moments you that you bottom fish BUY, for the easy money.