CASE STUDY: Cardinal Energy (CRLFF)

(Zen Buddha Silence by Marilyn Barbone)

(Image:  Zen Buddha Silence by Marilyn Barbone.)

May 1, 2022

Cardinal Energy (CRLFF) is a Canadian oil producer.

Here is the company’s most recent investor presentation: https://cardinalenergy.ca/wp-content/uploads/2022/03/April-2022-Corporate-Presentation.pdf

For 2022, revenue will be about $673 million, EBITDA $365 million, cash flow $337 million, and earnings $240 million.  The current market cap is $804.7 million, while enterprise value (EV) is $924.8 million.

Book value at the end of 2022 will be about $742.7 million.

Using these figures, we get the following multiples:

    • EV/EBITDA = 2.53
    • P/E = 3.35
    • P/B = 1.08
    • P/CF = 2.39
    • P/S = 1.20

Insider ownership is 18%, which is very good.  TL/TA (total liabilities/total assets) is 33.1%, which is good.  ROE is 52.1%, which is excellent.

The Piotroski F_score is 8, which is very good.

Due to years of underinvestment from oil producers, oil supply is constrained.  (Government policy has also discouraged oil investment.)  Moreover, due to money printing by central banks plus strong fiscal stimulus, oil demand is strong and increasing.

The net result of constrained supply and strong demand is a structural bull market for oil that is likely to last years.  The oil price is likely to remain high at $90-110 per barrel (WTI) and later perhaps even higher.

Intrinsic value scenarios:

    • Low case: Book value per share at the end of 2022 will be about $4.94.  This is 7% lower than today’s stock price of $5.29.
    • Mid case: Free cash flow in 2022 will be about $233 million.  Because this is probably the beginning of a structural bull market for oil, $233 million in free cash flow is a mid-cycle figure and the stock is worth a free cash flow multiple of at least 8.  That works out to $12.39, which is 135% higher than today’s $5.29.
    • High case: Free cash flow is likely to reach $470 million in the next few years.  With a free cash flow multiple of 6, the stock would be worth $18.75, over 250% higher than today’s $5.29.

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There will probably be a bear market and/or recession during which oil prices fall temporarily but then quickly rebound.  In this case, CRLFF stock would fall temporarily but then quickly rebound.

 

BOOLE MICROCAP FUND

An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time.

This outperformance increases significantly by focusing on cheap micro caps.  Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals.  We rank microcap stocks based on these and similar criteria.

There are roughly 10-20 positions in the portfolio.  The size of each position is determined by its rank.  Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost).  Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.

The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods.  We also aim to outpace the Russell Microcap Index by at least 2% per year (net).  The Boole Fund has low fees.

 

If you are interested in finding out more, please e-mail me or leave a comment.

My e-mail: jb@boolefund.com

 

 

Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.