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Painted Pony starts to gallop

Analysts hike their price targets - again - after the company's blowout first quarter (and the promise of more quarters like it to come)

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

May 14, 2014

by Max Fawcett

Everyone’s favourite prospective Montney takeover target released its 1Q14 results this week, and they were warmly received by the analyst community. AltaCorp Capital’s Jeremy McCrea pushed up his price target on its shares to $17 (a $3 bump), noting that its new completion techniques are having a considerable impact on its production per share (PPS) figures. “Although the company faces near-term facility constraints, management’s proven track record, PPS expected to increase 51 per cent into 2015, and a balance sheet still only at 1.2x (2015), Painted Pony is looking more attractive than ever now,” he wrote. “Interestingly, the company is trading near its 3-year low (consensus EV/DACF multiple) despite the strong share price performance YTD. Overall, with LNG becoming more a reality and 203 net sections of pristine Montney acreage (that continue to show better economics), we believe Painted Pony is a logical take-out candidate as Final Investment Decisions are made over the next couple years.” Canaccord, meanwhile, did McCrea one better, putting an $18 price target on it shares and maintaining its designation as its favourite natural gas name.

For those looking for other ways to play the emerging LNG story (not to mention conventional gas, given current pricing), AltaCorp put out a chart earlier this week that compared forward EV/EBITDA multiples to see which subsectors of the energy service space still have room to run. That isn’t the fraccers, who have seen their EV/EBITDA multiple expand from under six-times in October 2013 to over 11 times at the end of April. And while the space as a whole is trading at levels not seen since before the 2008 recession, that may well be justified given the buildout of LNG and generally strong commodity prices. As such, AltaCorp said, there’s still value to be had in oilfield rentals like Strad Energy Services (TSE:SDY) and Total Energy Services (TSE:TOT), along with drillers like Precision Drilling (TSE:PD), CanElson Drilling (TSE:CDI) and service rig/coil tubing/snubbing providers like Essential Energy Services(TSE:ESN) and High Arctic Energy Services (TSE:HWO).

And in the latest episode of “Where in the World is That Correction We’ve All Been Waiting For?” the Globe and Mail’s David Berman has an interesting take on the role that sentiment can play in bull markets. In short, if we’re worried about a correction, that might mean the market still has room to climb the so-called “wall of worry.” He cites a note by former Merrill Lynch strategist Richard Bernstein, who argues that the fear and loathing that abounds among market watchers and investors today is more common in the early stages of a bull market than the latter ones. “As the bull market ages and stocks continue their ascent, investors overcome their fears altogether under the belief that there is no downside risk,” Berman writes. “Sadly, this no-fear attitude tends to mark the peak of the good times and the start of a bear market. Where are we now? According to Mr. Bernstein, it is hard to see any full-blown risk-taking among investors beyond specific sectors such as social media and biotechnology.” It’s hard to believe that a bull market that’s already more than five years old is in its “early” stages, but stranger things have happened.

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