February 2, 2025
Here is my investment thesis for InPlay Oil Corporation (ticker IPO in Canada and IPOOF in the U.S.), which is a Canadian oil and gas company based in Calgary, Alberta.
Their corporate strategy is as follows: “Disciplined light oil growth developing high rate of return assets to generate strong free adjusted funds flow with conservative leverage ratios while maximizing returns to shareholders.”
InPlay Oil has an excellent management team that has consistently delivered production and cash flow per share growth while reducing debt. They have grown production at 15% a year the past 8 years and they have grown adjusted funds flow per share at 30% a year the past 8 years. Furthermore, they have boosted reserves by 74% over the past 8 years.
Sustaining capital for 2025 is expected to be 25-30% less than 2024 because the company invested $20+ million in infrastructure the past 2 years. The company also implemented strong hedge positions at favorable commodity prices to mitigate risk.
InPlay Oil is consistently more efficient (lower cost) than most of its peers in finding reserves and adding producing barrels.
The company also has a history of successful, highly accretive acquisitions.
The market cap is $105 million while enterprise value is $146.2 million.
Here are the metrics of cheapness:
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- EV/EBITDA = 2.94
- P/E = 5.89
- P/B = 0.51
- P/CF = 1.70
- P/S = 0.95
ROE is a bit low at 9.1%, but it’s improving. The Piotroski F_Score is 7, which is good.
Insider ownership is 25.3%, which is excellent. Debt is $40.4 million. TL/TA (total liabilities to total assets) is 40%, which is solid. The dividend yield is high at 10.1%.
Intrinsic value scenarios:
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- Low case: If there’s a bear market or a recession and/or if oil prices decline, the stock could decline.
- Mid case: NAV based only on total proved reserves is $4.18 per share, which is 260% higher than the current stock price of $1.15 per share.
- High case: P/CF is 1.70 but should be at least 8.00. That would mean a stock price of $5.41, which is over 370% higher than today’s $1.15 per share.
RISKS
There could be a bear market or a recession and/or oil prices could decline.
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. See the historical chart here: https://boolefund.com/best-performers-microcap-stocks/
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 approachesintrinsic 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.
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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.