₪ David Pescod's Late Edition December 18, 2007
CDN. IMP. BANK COMMERCE (T-CM) $72.47 -1.67
TECK COMINCO LIMITED (T-TCK.B) $34.12 +0.22
BREAKWATER RESOURCES (T-BWR) $1.68 +0.05
Just take a cursory look at some of the suggestions being made on the different Bullboards on Stockhouse and the like and obviously there are a lot of people new to the markets...that haven’t figured out it’s not just their one stock that’s down in this market these days, it’s a whole bunch of stocks. Everything from brokerage houses to banks to oil and gas to mining to you-name-it, there’s been a lot of suffering out there and we spent much of the last few days talking to those with 20 and 30 years in the business to see if they can ever remember experiencing a time like this. Most of them simply can’t.
We can remember the “Made in Alberta” recession of the 1980’s courtesy of Premier Lougheed signing the National Energy Program and Alberta suffered for much of a decade. But that was only in Alberta. The crash of 1987 was basically over in two days. Friday wasn’t good and Monday was ugly and the markets dropped almost 25%. If you were there, you knew it was historic, you lived through it and the markets moved on from there (although the junior Canadian stories had another ugly year or two).
In 1993, we saw a bit of a market slowdown as well, but what we are experiencing today is something I haven’t experienced before at a time with commodity prices high and as Peter Hodson of Sprott Growth Fund says, “anyone who wants a job, has a job, if not two.” What’s going on doesn't make all that much sense. We talked to people as diverse as Dick Gusella who is known to most people as the “Boss of Connacher” and a major player in Petrolifera (PDP) who also used to be a stock analyst years ago and also a branch manager. He figures this asset-backed mess is going to take six months to work its way through and figures we are only 15% to 20% of the way through it. He is right in the middle of the glue too, because Petrolifera has almost $37 million tied up in this asset-backed mess. Peter Hodson on the other hand, hasn’t got a lot of grey hairs and still expects some continued volatility. He points out “there seems to be universal belief that the world is ending and it’s being priced into the market.”
He continues to nibble away at his favorite stories and is surprised there hasn’t been a better response in gold and gold stocks. When is it going to end? Hodson says. He is looking for a situation like we saw in August — a capitulation to get the ugliness over with and then we can march on.
He points to lots of cash on the sidelines, particularly in mutual funds and he suggests that at some point, they will regain their faith in the market and when they decided to enter the market, good times will be back.
There are sectors that have escaped this such as agricultural-related commodities, because with corn and wheat hitting new highs, you have potash companies and tractor and combine companies hitting new highs and technology hasn’t been hurt much either. At a time of booming commodities, full employment, this doesn’t make all that much sense. I suspect there are some more write-downs coming and some quarterly results from banks and the like that might be quite ugly, but our own bet as much as we’ve been totally surprised at what we’ve seen with Main Street is just having a pretty good time other than those with mortgage problems in the States (and that problem peaks next March….is it already into the market?) and with Main Street doing okay in the majority, sooner or later, Bay Street and Wall Street will recover. Hopefully before it gets any worse.
OILEXCO INC. (T-OIL) $12.63 +0.36
While Oilexco has become a big story in the oil and gas exploration game, there are still not a lot of analysts that follow it. So it was interesting/intriguing last Friday when Oilexco finally does an update on their North Sea developments and suddenly you have two analysts looking at the same news with two totally different views.
Jamie Somerville of Genuity Capital writes a four page report featuring “Free cash flow generation delayed to 2009,” rates the stock a hold and gives it a target of $17.00, down from $18.30.
Meanwhile Canaccord’s Fred Kozak, one of the first analysts to ever follow the Oilexco story way back at close to $3.00, looks at the same data and likes it. He calls it a buy and gives it a $24.00 target. One of them might be right.
The two big items was that Oilexco has announced a huge capital budget for this coming year of $707 million compared to the assumptions of many that it would be a mere $400 million in 2008. Another bit of news was that their production at Brenda/Nicol is at 18,000 to 20,000 barrels a day versus expectations in the market of 30,000 barrels a day.
There are reasons for this of course ... the pumps aren’t working and the suggestion is when those pumps are turned on suddenly production should be back to the 28,000 level.
Somerville writes, “We are maintaining our HOLD rating while reducing our target price to C$17.00 from C$18.30. Although we remain attracted by near-term exploration that could add substantial value, we think the recent share price weakness will be extended due to greatly reduced expectations for free cash flow generation during 2008.”
Meanwhile, Kozak writes, “Our target price of C$24.00 (up from C$21.00) is based on 7.4 times 2008E debtadjusted CFPS but only 3.3 times 2009E debt adjusted CFPS and does not include the potential impact of the company’s current exploration program. We note that with a higher capital expenditure program in 2008 and 2009, the company’s tax horizon has now been pushed out into 2010…”
The next catalyst Kozak writes, “The company plans to commence its next phase of appraisal drilling at the Huntington oil discovery. The first well is expected to be completed in the first quarter of 2008. In addition, the company will be drilling a delineation well at Kildare, which should see results in early Q2/08.”
Kozak has a good 7-page look at the latest on Oilexco, so anyone interested, just e-mail Deb at Debbie_lewis@canaccord.com to receive a copy.
Meanwhile, Freddie also appeared on BNN yesterday in an issue of “Stars and Dogs” where he called Oilexco a “table-pounding buy”. As far as dogs, he suggested that many of the juniors in Alberta are going to be hurting. An interesting little piece to see for those who are fans of Oilexco.
Meanwhile, we touch base with Ron Elgie (the PR guy for Oilexco) who tells us that the pumps are now working, so production for Oilexco over the next while should be ramping up slowly, but nicely. Elgie also tells us that it’s amazing the number of people calling in looking for updates on Oilexco and whining about the status of Oilexco’s stock, and have yet to figure out that it’s not just Oilexco, it’s everything from brokerage stocks to mining stocks to oil and gas stocks, the bank stocks, etc. Most veterans have an idea of what’s going on out there. Elgie does say though that “yesterday was no fun at all with the volume of cranky calls.”
Meanwhile, there are some other analysts following Oilexco’s stock. Josef Schachter has upped his target to $25.00 and calls it a buy. Scotia McLeod has upped their target to $21.00 and First Energy has upped their target to $21.50. While Wellington West has a target of a mere $17.00, they also consider it a buy as well. And as we said earlier, there’s always a chance one of them might be right!
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