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Penn West Petroleum Ltd. Message Board

  • finplan43054 finplan43054 Nov 18, 2012 9:55 AM Flag

    The Emperor's New Clothes

    Yes, all the problems have gone away now. The insiders are buying! Yay!!! Except they're not. People who can't distinguish between options exercises and stock buys are the same people who can't read balance sheets. But let's assume these insiders actually went out and spent $1.5mil on stock. Does it really mean anything? No. It's less than 140,000 shares, which is less than 0.07% of the daily volume for one day. And any experienced trader knows that insider buying is not indicative of anything.

    One sad truth: Annual dividend (for now): $1.08. EPS: $0.78 Who needs a calculator to figure it out? Management has demonstrated that they are poor stewards of capital. Returns on invested capital have averaged less than half the company's weighted cost of capital (estimated at 10%) for the past five years. I would argue that a company that is not earning its cost of capital has no business paying a 10% dividend. You are welcome to disagree.

    Penn West's debt to cash flow ratio was about twice that of their peers. If it doesn't worry you, that's your judgment. However it apparently did worry Penn West management, in that they announced a $1.3 billion asset sale in order to reduce the debt. At current prices, Penn West's market cap is just over $5 billion so selling off $1.3 billion in assets is a pretty good chunk of the company.

    But who knows, maybe Mr. Obama will approve the Keystone XL pipeline, and Mr. Harper will approve the pending takeovers of Nexen, Progress Energy and Celtic Exploration. Maybe, as a result of that the Chinese will come in and pay a big price for Penn West. Could happen. Who knows.

    UBS just came out with updated debt/cash flow ratios for selected Canadian energy companies. For calendar 2012, they have the following debt/cash flow ratios:
    Arc Resources: 1.0
    Baytex 1.3
    Bonavista 2.6
    Crescent Point 1.0
    Enerplus 1.7
    Penn West 3.4

    This stock has been dumped by investors and institutionals and is down more than 50% in a year. No amount of pumping job can hide the facts. But then, why get confused and aggravated over facts. Just whistle and sing the same old mantras, everything will be OK. Buyer BEWARE!

    Stipulating once again that I think it's an OK play for speculation or gambling, but as a long term investment for people looking for income and growth, forget it. Many other great choices out there where you don't lose sleep...or value.

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