May 29, 2022
Pine Cliff Energy (PIFYF) is a Canadian natural gas producer. Pine Cliff Energy has a low-risk, low decline, natural gas asset consolidation strategy in Western Canada with 11 acquisitions since 2012. PIFYF has one of the lowest decline rates in the oil and gas sector with a base decline rate of about 6% on base production.
Demand for natural gas is likely to continue to surprise to the upside. Power burn demand is likely to remain high. At the same time, there is a shortage of global LNG. New LNG export capacity is being added in the U.S. and Canada. High power burn plus high LNG gas exports is causing total natural gas demand to be very high.
Furthermore, natural gas storage in the U.S. is 16% below its 5-year average. And natural gas storage in Canada is at an unprecedented low level.
Natural gas production in the U.S. remains flat.
With high demand, low storage, and flat supply, natural gas prices are likely to remain high and will probably go higher. The AECO near-month price is $7.53 (CAD/GJ) while the NYMEX near-month price is $8.67 ($/mmbtu).
Here is the Pine Cliff Energy’s most recent investor presentation: https://pinecliff-pull.b-cdn.net/Corporate%20Presentation%202022%2005%2004%20-%20Final.pdf
For 2022, revenue will be about $175 million, EBITDA $146 million, cash flow $135 million, and earnings $95 million. The current market cap is $503.6 million, while enterprise value (EV) is $526.5 million.
Using these figures, we get the following multiples:
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- EV/EBITDA = 3.61
- P/E = 5.30
- P/B = 3.49
- P/CF = 3.73
- P/S = 2.88
Insider ownership is 12.9%, which is good. TL/TA (total liabilities/total assets) is 21.6%, which is very good. ROE is 828.24%, which is outstanding.
The Piotroski F_score is 9, which is excellent.
Intrinsic value scenarios:
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- Low case: Natural gas prices could fall during a global recession. The stock of PIFYF could decline 50% or more.
- Mid case: Current EV/CF (where CF is cash flow) is 3.9. The average EV/CF for Pine Cliff Energy historically is 8.0. With EV/CF at 8.0, the stock would be worth $3.12, which is 105% higher than today’s $1.52.
- High case: Natural gas prices could increase significantly, which means Pine Cliff Energy’s cash flow would increase significantly. The stock could be worth at least $4.50, which is close to 200% higher than today’s $1.52.
Risks
There will probably be a bear market and/or global recession during which natural gas prices fall temporarily but then quickly rebound. In this case, PIFYF stock would fall temporarily but then quickly rebound.
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