One of the ‘best bargains’ investment dealer covers

Oil and gas stock Journey Energy is engaged in the exploration, development and production of oil and natural gas in the Western Canadian Sedimentary Basin. Acumen Capital analysts Trevor Reynolds and Mike McMeeken call it one of the best bargain stocks in Acumen’s coverage universe. 

In November, oil and gas stock Journey Energy Inc. (TSX—JOY) reported 2016 third-quarter numbers that matched, more or less, the projections of Calgary-based Acumen Capital analysts Trevor Reynolds and Mike McMeeken.

The analysts reiterate their ‘speculative buy’ recommendation for the company. They also uphold the 12-month target price of $3.25 per share they previously assigned to Journey.

The company’s quarterly production averaged 8,177 barrels of oil equivalent (BOE) a day, which was in line with the analysts’ estimate. 

Meanwhile, operating net-backs worked out to $14.08 per BOE, which just missed their forecast due to higher-than-anticipated royalties.

Operating expenditures of $11.83, which Messrs. Reynolds and McMeeken say “continue to trend in the right direction”, dropped year-over-year by 22 per cent. 

Energy stock’s debt is down; cost structure improved

According to the analysts, the company’s debt of $86.1 million was down quarter-over-quarter to the tune of 16 per cent and down year-over-year to the tune of 21 per cent.

During the third quarter, Journey also wrapped up four asset sales and a couple of acquisitions, which translated into a net loss of 915 BOE daily, but it also ended up with a substantially better cost and operating structure. The analysts add that the company’s updated 2016 guidance and initial 2017 guidance were pretty much in line with their projections. 

“As we have highlighted in previous comments, Journey appears to have reached an inflection point with the recently announced financing partnership with AIMCo (Alberta Investment Management Corporation) significantly reducing risk associated with the credit facility, while cost reductions and recent mergers and acquisitions activity have materially improved cash flow,” say the analysts.

They assert that cost structure improvements continued to benefit Journey in the third quarter. In addition, the management team has done a commendable job over the past half a year to three-quarters of a year to lessen expenses, the analysts say. 

They say that this oil and gas stock, despite the upwards momentum over the last several months, still remains one of the best bargain stocks in Acumen’s coverage universe.

 

Investor’s Digest of Canada, MPL Communications Inc.
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