GREY:CLLZF - Post by User
Post by
CravenMooreheadon Apr 08, 2014 11:39am
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Post# 22424997
Golden shower was looking for some analyst research....
Golden shower was looking for some analyst research....Research update on Connacher - March 2014 +------------------------------------------------------------------------------+ Research update on Connacher - March 2014 2014-03-21 00:10:11.480 GMT Despite the 5-6 points price run of the bonds since our research initiation last fall, the 2nd-lien notes of Connacher remain attractive, in our view. We expect the company to grow its assets based using debt until the company's EBITDA reaches at least $200mm, after which equity markets will likely finally realize that the company's stock is very attractive and the capital structure will be changed towards equity. We forecast the 2014 EBITDA range between $155mm and $188mm and expect break even or slightly positive cash flow generation despite the total 2014 estimated Capex of $75mm-$78mm. The bonds are worth par in our view, and this price level will likely be achieved within the next 18-24 months, thus providing equity-like returns between 19% and 24%. Est. normalized growth Capex($50.0) Cash interest expense ($78.0) Maintenance Capex ($25.0) Total fixed charges ($153.0) As the picture above shows, the expected EBITDA range provides an adequate safety margin for error for equity investors. The old “show me” story stereotype that has pre-occupied minds of traditional “black box” high yield portfolio managers has been challenged by the consistent operating returns. The company is on the right track, and we feel that the capital structure will change within the next 2 years after the production rates exceed the 16,000 b/d benchmark. The whole investment thesis is that the company's management is definitely working for shareholders: it secures the slow sales and EBITDA growth, while keeping strong equity optionality for future operations. The future upside for the company's equity is predicated by the nature of the company's growing oil reserves and by the quality of its deployment. The company has been able to demonstrate that the capital it has been employing has been generating incremental increase in cash flow generation.