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Opinions Eric Nuttall
Cardinal Energy LtdCJ.TOPARTIAL BUYApr 17, 2018
Eric NuttallStock price when the opinion was issued
As of Jun 19, 2026. Market Open.
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For the mid-cap Canadian companies in the space with higher yields, be very careful. If you're looking for dividend sustainability, we've gone through a couple of cycles in the last decade -- dividends have been both increased and reduced. Yield is 11%.
In the space, he prefers FRU.
Spending more money on a project, free cashflow won't be for 2 years, and market's attention span is very short. Concern they'll be burning cash to pay the dividend. Balance sheet indicates sustainable dividend, unless oil price really nosedives. Insider buying. Too small for him. Yield is 10.5%.
He never buys a company on the expectation that it will be bought out. Good exposure to medium-heavy oil. Very manageable debt levels. Older, higher-cost assets, so it needs a higher than average oil price. If you don't care about capital appreciation and just want the juicy dividend, it's not the worst name.
He owns it in his RRSP because of the dividend. Company's done a decent job. Need oil prices to go up to bring excitement to the stock price. It was noted that the company has a negative carbon footprint. Yield is around 10%.
Bruce MurrayCJ is always going to be cyclical, but it has a very strong balance sheet and good cash flow. Dividend payout ratio is less than 30%, but cash flow can change quickly if commodity prices drop. But we see no real problem with the dividend, but it is of course not guaranteed, and with 10%+ yield investors do seem concerned. While we are not overly worried, we would not use the word 'safe' for the dividend of any oil and gas stock. Cash flow and earnings will drop this year on lower pricing. The stock is cheap, but with little growth expected we would rate it a HOLD and not a BUY.
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EPS of 10c missed estimates of 15.3c. Revenue of $135M missed estimates of $136.6M. Production was 21.7K b/d day and free cash flow was $28.8M. Its 2023 drill program will renew in the 2Q. Production rose 5%. The balance sheet is now nearly debt free. Earnings are expected to fall this year. The stock is very cheap, but RBC seems to be taking a conservative stance in case prices fall in a recession. We think the 7X valuation already reflects most risk. Payout ratio is <25%, though at an 11% yield investors seem unduly concerned on the dividend.
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The caller asked how the company can pay out more dividend than it earns. Mr. Nuttall explained that there can be a mismatch between earnings and cash flow based on when the company books its costs of land and exploration. From a cash flow perspective, using strip pricing, he sees their dividend at about 33% of cash flow. The 9% dividend of Cardinal is completely sustainable, from the perspective of cash flow. If you look at cash flow minus maintenance capex, you see free cash flow of 18%. It is rare to find a business with an 18% free cash flow yield. From the perspective of a dividend-oriented investor, this is a good stock with good exposure the oil market. However, from the perspective of capital appreciation, other companies will grow faster. He acknowledges that companies like Cardinal are perceived to have abandonment liabilities, but he isn’t as concerned about them as he thinks the rest of the market is. He expects a total return in the mid-teens.