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Three Alberta companies among Clarus Securities’s top picks for the rest of 2014

Also: why Athabasca Oil might be ripe for a hostile takeover bid

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Jun 30, 2014

by Max Fawcett

Clarus Securities released its list of nine companies it thinks will outperform for the rest of 2014, and it features three Alberta names – and one other one that ought to be familiar to Alberta Venture readers. First up is the Venture-listed Lonestar West Service (CVE:LSI), which Clarus identifies as its top energy services name. “The company continues to grow aggressively,” it wrote, “opening new U.S. branches in Texas, Oklahoma and Kansas since the beginning of the year while also completing the acquisition of a Saskatchewan-based operator of 23 [hydrovac] units to bring its total fleet to 116 units compared to 67 at the end of 2013.” The growth is good, but as Clarus notes there could still be plenty to come. “Lonestar’s closest competitor Badger Daylighting (TSE:BAD) is currently adding trucks at a rate of one per business day or roughly two Lonestar-sized fleets per year which is indicative of the overall growing demand for hydrovac services.” That’s the same Badger Daylighting that has seen its stock soar nearly 400 per cent since the beginning of 2012. Clarus has a $5 price target on Lonestar’s shares, a comparatively modest upside of 23 per cent, but as Badger has shown they’re in a sector where more – much more – is possible.

Clarus has two names in the E&P space: the Venture-listed Pine Cliff Energy (CVE:PNE) and Spartan Energy (CVE:SPE). Pine Cliff, it says, is the company of choice for those who want exposure to the natural gas space. “Although the stock has lost some momentum after several asset transactions have passed by Pine Cliff, our investment thesis on this natural gas consolidator remains intact as we continue to see significant deal flow. At current levels we see an interesting opportunity to step in ahead of strong gas prices and news flow on an acquisition announcement in the second half of 2014.” Clarus has a $2 target on PNE shares, a 38 per cent upside to where they’re trading right now.

Spartan, of course, is the name of choice in their eyes for investors looking for increased exposure to oil. “It has been only six months since the recapitalization in late Q4/13 and the company has grown from 700 boe/d to 7,600 boe/d currently,” Clarus says. “With a premier management team at the helm, we expect this growth trajectory to continue in a sustainable manner through accretive acquisitions and development drilling.” It has a $5.25 target on SPE shares, a 30 per cent premium to where they’re at today.

And then there’s Urthecast (TSE:UR), the Vancouver space-tech company whose CEO was the keynote speaker at our Fast Growth 50 conference earlier this year. Its shares are down more than 40 per cent this year, but Clarus’s Eyal Ofir thinks that could represent the buying opportunity of the year. “In our opinion, Google’s recent acquisition of SkyBox, a close UR competitor, reaffirms the opportunity in the Earth Observation (EO) market and validates UR’s longer term consumer play,” he writes. “With the overhang on the stock related to geo-political issues due to the Russia/Ukraine situation along with minor commissioning delays of the cameras, which we believe will abate, we would like to remind investors of the revenue potential and margin profile of the company ‘cheating’  the economics within the established EO market.” Understandably, he has a ‘speculative buy’ rating on the company, but it comes with a $5.50 price target – more than 300 per cent higher than where they’re trading today.

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Elsewhere, the Financial Post’s Claudia Cattaneo had an interesting piece last week about why Athabasca Oil (TSE:ATH) could be a sitting duck for a potential takeover. Once it receives the $1.23 billion in cash (after related transaction costs) that it’s due from PetroChina in exchange for the balance of its share in the Dover Project, the company will be sitting on a pile of cash, very little in debt and a portfolio of interesting assets that the market may not be valuing correctly. One of those assets is its Duvernay property, where it controls more than 200,000 acres, and it’s been actively soliciting bids on it for months. A deal could be announced any day now, Cattaneo writes. “Industry sources say Athabasca hopes to announce a deal soon after it receives the PetroChina cash. A deal would highlight the value of its assets, boost its stock price and make the company less vulnerable to a hostile takeover.”

But, she writes, that’s precisely why a takeover offer might materialize before that can happen. “Athabasca’s share price is so depressed someone interested in its Duvernay acreage could bid for the whole company for a similar price, and get its remaining oil sands assets for free.” And who might that be? Repsol, the Spanish oil giant, is one that she throws out, noting that “Athabasca was in negotiations two years ago for a joint venture with Repsol as well as with Kuwait Petroleum, to develop its Hangingstone and Birch oil sands projects, but the deals were not finalized. Repsol has re-emerged as a potential bidder for Athabasca, according to reports Wednesday in Spain. The Spanish company is said to be cash- rich and looking for a position in the oil sands.” Indeed, those reports suggested that Repsol has $12 billion burning a hole in its pocket. Could it devote a portion of it to Athabasca, which the market is currently valuing at just a shade over $3 billion?

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