BNN - Thursday, May 23, 2024 - 01:00 p.m. (ET) - Segment #6

>>> Tom is in kingston, ontario. Go ahead, tom, please. >> Caller: thank you. Andrew. Crew energy. Any comments you can make on it will be very much appreciated. I had an aside question regarding lng. It's been two decades since chairman greenspan called for global lng transfer. I am wondering is there any plan to build an lng terminal on the hudson bay coast. >> Right. >> Caller: thank you for having me on. >> So our current government thinks that there is no business case for lng anywhere east of british columbia. So for now under the existing government which some of us will change in a year's time with everyone's pensions vested -- vest we don't see that occurring. What is happening in canada lng canada, it's almost online. Taking in gas very, very soon. >> Andrew: yes. >> The real story is in the united states which benefits canada. So they will be going from about 14.5 bcf a day of current liquefaction capacity to almost 28, 29. So a lot of people look at the drilling plans of the members of lng canada especially one would think they will announce a phase two sanctioning for the next year, I would say. The demand for international put gas is much stronger than what drilling plans would suggest. And so there is the belief that you could see some m & a occur. Crew I would say is one of the most likely names to be purchased when you look at land mass relative to ability to meaningfully drill it. I think some people own is it for that. I personally don't like to own stocks just on m & a take-out capacity. We remain in a market where trying to in small caps remains very, very low outside of me. And perhaps my remaining competitor. And so it's just not hitting enough radar screens currently. When we look at next year at $4 gas and $80 oil we have the stock at 2.7 times cash flow that's very inexpensive. More modest free cash flow because they are pursuing more growth than average. We would say a four multiple being reasonable, $4 gas. That would be about a $7 target but it's not a name that we own right now. >> Andrew: okay. We have don in grande prairie, alberta, go ahead, don, please. >> Caller: good afternoon, gentlemen. My question is on crescent point or baron the new name. $80 wti if we could get that average somewhere around the next 12 months. What do you see a price target on crescent point? >> So baron, we will have all to get used to the new name. At $80 we have them trading at .3 times and a 17% free cash flow yield. We think that the mid caps fair range 10 to 12% free cash flow yield is a target with the belief that the entire sector will return at a minimum 75%. Crescent point we think can get there in about a year's time. They continue to pay down dent from some of their acquisitions. At a 10% free cash flow yield which we think is reasonable for them when you look at the drilling depth they have they have 20 years I think of high quality inventory. They drilled recently the longest well ever drilled in canadian history. They are drilling some of the most economic drills in the montney right now. They have proven their ability to successfully execute on their drilling program. They have completely rechanged the company hence the name change. $10% free cash flow yield at $80 19.57 target price 70% up side from here and it's a reason why it remains one of our top holdings. 9.5% weighting in our fund. >> Andrew: crescent point.

>>> Frida in chilliwack, bc. >> Caller: bay tax and tack ram valley. Baytex. Which one is the best bet? Thank you. >> They remain deeply out of favour because investors have had a poorer experience. Both share the same attributes. They were active doing m & a. Tamarack more than others a little bit. It created overhang. So the timing and quality of the assets that each them bought was very good. But it's created this drag on the share price which will soon be alleviated. Tamarack should be I don't believe there is any existing overhang. The last one had been arc financial. Pretty sure that's been taken care of. When I think about tamarack, I cannot find any of their competitors who will say anything bad about the quality of their acreage. >> Andrew: normally more than happy. >> That's a very strong positive. >> Andrew: okay. >> They did buy high quality acreage perhaps at the time they may have slightly overpaid for some with the benefit of hindsight but a very high quality acreage. They have now finally hit our numbers for two quarters in a row and so are confident in their execution is increasing. And as we look to the company do you get some natural gas leverage in 2025 at $80 and $4 gas it. Trades at 2.9 times cash flow and more importantly at 20% free cash flow yield. So the whole theme is them paying down debt them reaching their 500 million-dollar target where they will inflect to 75% of free cash flow coming back to us and we have that happening in -- well, I guess the distant future. For now you have to be happy with 50%. Only a modest 10% of the shares outstanding that they can retire every single year. We had reduced the rating a little bit about a month and-a-half ago when we were call, on the overall market had. We took the weight down from 10 to about 6.5. I will say on shows share price weakness over the past week 20% free cash flow yield up side almost adds 7 price target which is almost a doubling from here. It's getting increasingly attractive even though we and people have had a bad experience with it over the past year, year and-a-half. >> Andrew: we will be talking more about baytex energy later in the show.

>>> ERIC NUTTALL TAKING YOUR QUESTIONS ON ENERGY STOCKS. Hi, I'm Taylor Thoen. Next time on BTV Business Television. We are in a very unique position. We are the fifth largest open pit project in North America. There are not very many projects that have 7,000,000oz in a tier one safe jurisdiction. The future and the potential for this project to move forward are getting better. With all the work that we're doing to continue to de-risk it. Watch us online or here on BNN Bloomberg. At Pet Valu, we treat your pet like our pet. Well, Georgie, it's time for adult food. And there's a lot of great options to choo... too choose from. They grow up so fast. I know... I do this like ten times a day. Harvest Equal Weight Global Utilities Enhanced Income ETF. The world's top utility companies in one ETF, global Utilities and steady monthly income. Harvest ETFs, income happens here. ( ) ( ) The INFINITI QX60 exemplifies modern luxury. With powerful SUV performance, three rows of comfort, and a sleek-yet-daring design. ( ) Lease a 2024 QX60 from 0.99% APR for up to 24 months. Visit INFINITI.ca. ( ) Feeling sluggishor weighed down?Could be a sign that yourdigestive system isn't at its best. But a little Metamucilevery day can help. Metamucil psyllium fiber gels to trap and remove the wastethat weighs you down and also helpslower cholesterol and slows sugar absorption to promote healthyblood sugar levels. So you can feel lighter. Lighten up every daythe Metamucil way and try Metamucil Fibre +Collagen Peptides to help promotedigestive health and reduce joint pain. >> Andrew: ERIC NUTTALL IS TAKING YOUR QUESTIONS ON ENERGY STOCKS. WHAT ELSE.

>>> John sylvan in alberta -- or john in alberta, go ahead, please. >> Caller: hi, eric. How are you? >> Hi, john. I am well, thanks. >> Caller: you are the man in the oil patch. >> Thank you. >> Caller: can you give me your view on tourmaline oil with lng possibly coming on? Natural gas prices increasing. Can you give me a target price on that, please? Thank you. >> You bet. Tourmaline I would regard as the highest -- one of the highest quality names that you can buy to get access to a bullish natural gas outlook for 2025. You are getting feel like I've said this many, many times but you are getting all the attributes that you want. Rock star ceo very good management team. Huge inside ownership. Decades and decades worth of drilling inventory. A very good gas marketing team. So they have done a great job of accessing hubs before competitors get premium pricing. Do you get exposure amongst them and other natural gas guys to a bullish outlook on natural gas as the storage glut gets erased due to what is now hot weather thank god plus producers curtailing volumes and the inevitable increase in lng capacity. So for us tourmaline it's a barbell approach. We have about a 5% weighting in tourmaline. We have been adding to smaller cap natural gas names when liquidity allows because it is a challenge. We just bought more of one -- another one this morning. So for tourmaline we have got it again this is $4 nymex. Five times cash flow and about a 9.2% free cash flow yield. In terms of cash returns we have had about a 5.5 to 6% -- I am sorry. 7% yield next year specials plus the base. U.S. companies traded material premiums to canadian names. You can look at a range 6s to 7s. So we think tourmaline given the pedestrian grieve management, inside ownership quality assets 7 is pretty reasonable. A $93 target price which is 36% up side from now. So it's not the doubles. In terms of the fund manager you can't just have an entire fund with those types of names because the volatility will make most clients seasick at times. So you've got to add ballust. Tourmaline is ballust within a portfolio. >> Andrew: thanks for the question.

>>> Daniel is in markham, ontario. >> Caller: hi, andy. Hi, eric. >> Hi. >> Caller: can I have your thoughts on energy allocation strategies? What's your decision-making process benchmarks and targets equal weight cash on the side to fully invest it as well as fully invested to [indiscernible] essentially the eric nuttall philosophy. One of the best and favourite guest on "market call." come more often. >> Thank you very much. >>> So personally and I am a little odd in this. I like to buy when others do not. I have panic. I 6th fear. When you want to be greedy when others are fearful and I find those best buys are when you are sick to your some angle. That's not the case today but a lot of before we talked about this earlier a lot of the florian oil oh, my god ukraine is bombing russia and what will happen with israel and all these different things, iran. That is not a time to deploying capital because when there is huge risk premium in the oil price you've got to worry about waking up one day to a headline oil is down $5 names have fallen 10 to 15%. We look at where global inventories are today there is no risk premium in the oil price. We are bullish on oil. That makes me want to deploy capital. We have gone from 33% cash weight to about 10.5 right now. We are actively spending that money. Question is what do you want to buy. You can buy oil names. Right now if you look at the spread between large caps and small that valuation gap is the widest in history. Meaning the large guys are trading at such a massive premium and the small guys are such a discount. So why is that? There are 2 energy funds left in the country. Another one of my competitors winding down is my understanding. They are a good team they have done very well. It's an inefficient market. There is not as much interest in the small cams. That makes me want to buy large caps you think. We typically want to be contrarian. We see nunavut small mid-cap stocks so long as you have asset quality, asset tenure and a management team that you can trust. Where that free cash flow will allow for very meaningful share buy-backs. So when I think about like a tamarack we talked about earlier 20% free cash flow yield. Another one I will talk about later on a 30% free cash flow yield. There is always a bit of hair to the story and so your job as a fund manager as an investor is is to determine is this a mispriced stock or is this a value trap. A value trap is a cheap stock that stays cheap forever. A mispriced stock is an opportunity where there is a catalyst to drive that re-rating. My job is either to identify catalyst or to create that catalyst to drive that re-rating and my belief it's meaningful share buy-backs. Actions speak louder than words. We are actively deploying cash we raised pretty significantly about a month, month and-a-half ago. >> Andrew: trying to think. So stocks are out of favour I guess people are worried beauty is skin deep but ugly goes all the way down. [laughter] right. It's hard to find ones that are fairly discounted.

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