Trican Well Service Ltd. (TCW.TO)

He thinks it is should be bought in Q1 after a possible back off in oil. They have debt but shares in a US operation that offsets the debt. They had a fabulous quarter. It bottomed in early 2016. The balance sheet is now clean and they could make acquisitions. A non-compete clause with an acquisition expires in 2018.

This gives you pure Canadian exposure in a market that is undersupplied. In their conference call, they said they had visibility through to break up, which would be Q2. All their equipment is spoken for through all 2018.

It is flat but had a bit of a recovery with the whole group. If he was going to play this group he would choose this or one other. He wants to see another quarter (first week in Feb) and that may be when he gets back in.

Came off dramatically as oil prices came off in 2015-2016. He typically doesn’t like oil services or energy related stocks, simply because they don’t have the ROE profile he is looking for. Would prefer Pason Systems (PSI-T) or Badger (BAD-T) instead.

Pricing is going up and demand is nearing a record high. They are at 100% utilization of all the equipment that they can man. They have demand for 3 more spreads, and can’t find people to actually work on it. This shows how tight this market is at a fairly crappy commodity price, where you have weak gas prices. Thinks this stock next year, can EBITDA $300 million. Trading at 4X EV to EBITDA on 2018, where it usually trades at 7 or 7.5 times, so still sees it as a $6-$7 stock. He likes this company very, very much.

He likes the service sector, but if he is right and the price of oil is going down below $40, these stocks get hurt more. They are high beta securities. This company has a nice investment in Kean, the US assets, which almost equals the amount of debt they have. At the end of Q1, BV was $2.62. Feels this is going to be very attractive in the next cycle. Feels the stock could come down below $2.

Canada is materially undersupplied for pressure pumping demand. Pricing will continue to go up, and yet these stocks are selling off in the belief that while crude oil has checked back, companies are losing pricing power. That is not correct. This company can cash flow $300 million next year. Where the stock price is trading at, it is discounting by about $150 million of cash flow next year, not $300 million. If he is correct, there is 75%-100% upside in the stock. A stock price of $6-$7 is not unreasonable. (Analysts’ price target is $5.88.)

If the underlying commodity price improves, that should be beneficial. At the moment, earnings estimates are for $.04 in 2017, a pretty pricey PE multiple. This is expected to improve to $.27 in 2018 which gives a 12 multiple, and a $.53 multiple for 2019 giving a 7 PE, which becomes interesting. It looks like a reasonable bet.

*Long* (Pairs trade with a Short on Pason Systems (PSI-T)). An area he likes in energy services. The pressure pumpers and fracers are the ones that are actually making money at the moment. The stock is cheap. He likes management and the merger they just did. No dividend. (Analysts’ price target is $6.)

This, along with all the other drillers, has been a tough one. On a pure price momentum basis, it has held up better than a lot of its exploration energy peers. It has the same problem that a lot of energy companies have. Not cheap on some of the measures he looks at. The whole sector needs to start earning money for him to get interested.

In the process of integrating Canyon, and will be the largest fracing company in Canada. A very high beta stock that does very well when you have big swings in the cycle. BV is $2.62. Had an operating profit in Q1 of $23 million versus a loss of 26 million in the prior year.

Thinks the market is completely asleep in terms of their earning capability. Pricing is going up quarter after quarter, and their equipment is fully utilized for the rest of this year. They have a merger with Canyon Services (FCR-T) pretty soon. Prices are increasing virtually every day. He sees extremely good upside on a stock that has been out of favour. At the same time, you get the hidden optionality with their remaining interest in Kean (?). (Analysts’ price target is $6.)

The sector has been doing some strange things lately. This normally does quite well from late January right through until May of each year, so we have reached the end of the period of seasonal strength. The stock is in a downward trend, at a time when you normally expect it to see positive seasonality. This is the time when you no longer want to be involved, either seasonally or technically, with the stock.

They will now be above the $ billion market cap and it opens up to a lot more buyers and can get index inclusion. In the US we are talking 25% quarter over quarter price increases. (Analysts’ target: $6.50).

They monetize a portion of their US former operations, which is now in a public company called Keane. The market has been over penalizing the value of that asset, and he expects another $2.10 of future value. If you strip off the value for Keane, the stock is trading at about 4.3X next year’s EBITDA. He thinks they can EBITDA $150 million. If you put a 7.5X multiple on that, he gets over a $7 share price, a 50% upside. (Analysts’ price target is $5.77.)