CASE STUDY UPDATE: Journey Energy (JOY.TO / JRNGF)

September 29, 2024

Journey Energy is a Canadian oil and gas producer that is also becoming a significant producer of electric power.  Journey’s stock is extremely cheap and the company is poised for significant growth in 2025.

The CEO Alex Verge has a long history of creating value in the oil and gas industry.  And he has bought a great deal of Journey Energy stock on the open market.

The market cap is $109.7 million, while enterprise value is $143.4 million.

Metrics of cheapness:

    • EV/EBITDA = 3.04
    • P/E = 9.34
    • P/B = 0.46
    • P/CF = 1.86
    • P/S = 0.73

(The P/E is based on forward earnings.)

ROE is 3.85% but will increase in 2025.

The Piotroski F_Score is 5, which is OK.  This also will likely improve in 2025.

Insider ownership is 7.6%, which is solid.  Cash is $18.91 million, while debt is $64.29 million, almost all of which is due in 2029.  Total liabilities to total assets is 46.4%, which is decent.

Intrinsic value scenarios:

    • Low case: If there’s a bear market or a recession and/or if oil prices decline, the stock could decline. This would be a buying opportunity.
    • Mid case: NAV based only on proved developed producing assets is $3.70 per share, which is 105% higher than the current stock price of $1.80 per share.
    • High case: EV/EBITDA today is 3.04 but should be approximately 8.00.  That would mean an enterprise value of $377.37 million or a market cap of $343.67 million.  This means an intrinsic value of $5.64 per share, which is over 210% higher than today’s $1.80.

 RISKS

    • If there’s a bear market or a recession, the stock could decline temporarily.
    • Oil prices may even 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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