Tuesday, November 8, 2011

Nuvista Energy, Opportunity or Value Trap

Okay This one does not pay a dividend, I have taken a rather big position in NVA, and I am very excited about it.

It is trading at a serious discount to its assets. and there is nothing wrong with it as far as I can tell.

The price is now $6.25
The CIBC analyst said this about the stock when it was trading at $9.15
NuVista trades at 63% of Risked NAV and 4.2x 2011E EV/DACF versus its peers at 75% and 5.5x, respectively. We believe investors are not paying much for significant upside that NuVista has in its asset portfolio, hence our Sector Outperformer rating
According to their math, the stock is trading now at 43% of risked NAV and %72 or core NAV.
This means if you value all their unexplored (probable) and undeveloped (proven) reserves at $0 then take the assets that are currently producing discount them by 28% you'll get $6.25 a share

RBC Analyst also thinks this stock is undervalued, it is rated as Outperform, and given a price target of $9.00

Ontario Teachers is invested in this company. They own 18% of the stock. They last bought shares at $9.50 in March 2011 so we are getting a 35% discount to what Teachers paid. Those guys have done their research and invested 8 months ago. This gives me more confidence in this stock.

Daylight energy
These guys operate in roughly the same areas daylight energy is operating, which gives more confidence to the NAV numbers, The Chinese bought Daylight at 1.2x risked NAV here we have a chance to buy at 0.43x risked NAV.

Management Team
The CEO who recently joined comes from Talisman Energy an oil major and has many years of experience and seems like a very qualified guy for the job. I've read good praise about the management team from CIBC and RBC.

Earnings are coming out on Nov 10th, The company gave an operational update in August saying everything is on track to meet the projections.

It is clear that this stock is undervalued, when will it appreciate is a different story. The only risk I see to owning this is that you could miss out on the other oil and gas stocks that are cheap right now while waiting for this one to appreciate.


  1. So seriously - what are your thoughts on NuVista three weeks after you bought it? Opportunity or Value trap?

  2. Here are my thoughts

    1. There is an undervalued hard asset behind the shares. The core NAV for this stock is about $7, ( that is the net value of proven reserves and producing assets ) the risked NAV is somewhere around $11 ( that includes value for unbooked reserves and undeveloped assets. these valuations more or less match both the CIBC and RBC analysts.

    2. The biggest investor here is the teachers pension plan at ~ 30% ownership, and their cost is somewhere north of $9 so I doubt they will accept a takeover for less than risked NAV at a loss to them.

    3. The insiders are buying which means, chairman just bought 100,000 @4.7, this guy knows what he is doing, he is on the boards of bonavista and CNQ

    4. There is no takeover in the works. first teachers is not looking to sell, second insiders are buying, if there is a deal in the works they would not be allowed to trader the shares.

    5. They produce 70% natural gas by BOE, but 50% of their revenue comes from the oil. and they also produce natural gas liquids. They are getting punished because of the price of natural gas.

    I've averaged down to 5.14, I'm in the red but In the end this will pay. I think this stock is a good buy right now.

    1. How come you've stopped updating your blog? :(
      I like your views on Canadian companies and the economy in general.

  3. Hi DL,

    Looks like you're finally in the black on NuVista . . . any further thoughts on the company? I see the stock price has slowly been rising throughout the fall . . .

  4. I ended up closing this position after about ~18 month I ended with ~37% returns.

    I averaged down and used covered calls, then eventually got called.

    I'm not following this stock anymore.