BNN - Thursday, May 23, 2024 - 06:00 p.m. (ET) - Segment #3

selling covered calls on a monthly basis, which is part of our strategy in the Ninepoint Energy Income Fund. We're concerned that the market just has this rock-solid view that they want to always go and buy things. And what we've seen from-- >> Andrew: Sorry, they've been very aggressive, have they, on the takeover front? >> Yeah. And so what that creates is overhangs, and I think people are just sick and tired of having to deal with overhangs. The Tamarack Valleys, the Baytexes, they've all, they've had overhangs we've had to deal with. >> Andrew: They issue a bunch of stock. >> They do and eventually that stock comes to the market. And no doubt, especially if you're doing it at a bottom of cycle, you're buying-- you're taking advantage of timing. Crescent Point has done a great job of this. But I just think the market is sick of having these positions where it's like, oh jeez, they just bought something, now we gotta wait six, nine months for the share price to actually do something. I think that's plaguing the upside potential in this name. So, we look at it, you know, 3.6 times cash flow, 13.5% free cash flow yield. A lot of that is being used with the dividend because it's yielding 7%. We think five multiple, about a $15 share price is reasonable. But for capital appreciation, we think there are other names that will likely outperform until management does something to change the perception that they always want to go out and buy something. >> Is that a thing we should always ask a CEO who has done a takeover for a stock or a lot of stock? Well, what about the overhang you're creating here? >> Yeah, because it does and it's something that you just inevitably have to deal with. >> Yeah. Because if it ends up, say, in institutional hands, the new stock, they're gonna be maybe holding too much of the company then. >> Every situation is different. >> Yeah. >> It depends where, like, I think about Baytex bought a asset, very good quality asset. They've proven that now, paid a very good price for it, but it's private equity. So, a lot of private equity guys, if you're a private equity fund, you need to return that capital back to your share-- your unit holders within usually a five- to seven-year term. And then you look at, well, the fund's got a year left in its life. You know they're gonna be a seller. You just have to be aware of each situation. >> We're gonna be back with Eric Nuttall taking your questions on energy stocks. 1-855-326-6266. 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. New Herbal Essences is packedwith naturally derivedplant based ingredientsyo and none of the stuffit won't. Our sulfate free collections,smell incredible and leave your hairtouchably soft and smooth. New Herbal Essences. We know you care. But if this is all too real for you and your loved ones. Make the call. Because we care too. Home Instead. To us, it's personal. - [Narrator] The Ninepoint Energy Fund managed by Eric Nuttall. Generating long-term alpha in the energy sector through conviction and access. Number one Energy Fund in the Morningstar energy equity fund category for 3, 5, 10, and 15-year performance. Available under ticker NNRG. The world of investments is growing, offering more alternatives than ever. ( ) Choose an alternative that invests, in what's here to stay. ( ) Things you can see and touch. ( ) Things that are part of our everyday lives. ( ) Avenue Living brings a different approach. ( ) One that's steeped in history, experience, and trust. ( ) Choose a proven alternative. Talk to your advisor about Avenue Living today. ( ) ( )( ) ( ) ( ) ( ) (Dramatic music) I am Paul Atreides! Duke of Arrakis! Let me fight beside you. I'll show you the way. >> Email from John. Is Birchcliff a buy? >> We don't own Birchcliff. We've been buying other smaller

natural gas names to barbell, are ARC and Tourmaline, and we own another name called Chesapeake. Birchcliff, so they cut their dividend. There was a huge short interest and it's good that they did because when you look at the payout ratio now, it's about 93%. So, that's dividend plus CapEx. That's right up against the line. They've been using debt to fund-- or they were using debt, at least, to fund their dividend. As we look to next year, again, this would be at $4 gas, the payout ratio on our math drops to about 73%. So, a lot more defendable. But if you are looking at a current yield now of about 6.7%, we think you can get a higher yield in a name-- even like a Freehold, frankly, you can make 8% in Freehold, versus 6.7 in Birchcliff, where you don't have this concern about the drag on debt. Take-away capacity issues. A new-ish CEO Jeff Tonken retired. So, you've got somebody, you know, they're gonna prove themselves over time, I'm sure. There's a few other names that we would prefer that we are actively accumulating literally right now. So, it's not a name for us. >> Andrew: Okay. Luke is in Toronto. Go ahead, Luke, please. >> Luke:Thanks, Andy. Eric, my question is on NuVista. How high is it going, and more importantly, when? >> When! >> Luke:And also, I've owned these stocks since 2020. They were up huge between 2020 and 2022. Really flat the last few years. When's the next leg up? >> Well, you'd be going-- on NuVista, you'd probably, you know, if it's gone from 14 cents to $13, so it's done okay. We think LNG Canada's going to be the next catalyst. So, you have to appreciate, like natural gas, we look at storage, storage in Canada is about 61, 62% above the five-year average. So, this was the winter that never was. There was no heating demand. We have got a lot of gas. You are seeing that fixed. You know, the forecast for the summertime in North America is gonna about 2° hotter than average. You've got producers curtailing volumes that's fallen from about 104 Bs to about 96. So, they're curtailing volumes. You've got LNG projects hopefully coming online in the United States. There's potentially some delays. So, I think you just have to be patient. We're adding. We're deploying capital in certain names like a NuVista, where you get the benefit of condensate now, strong optionality to gas prices later on. A concern for us remains in NuVista that Paramount is their largest shareholder. We were at a time their second largest shareholder, and with Paramount owning over 10% there is this ongoing concern that, you know, they could be a seller any day kind of thing and it's gonna drag the share price. We would love to be a part of the solution to that problem. I think certain people are aware of that. So, it's just gonna be taking a bit of patience. You know, we look at it as trading at 2.9 times cash flow and a 16% cash flow yield on our estimates. They're returning 75% of that free cash back in the form of share buy-backs. We think a 10% free cash flow yield, five multiple is appropriate. That gets us a $23 share price or 78% potential upside. But again, there's this overhang with Paramount that I think is keeping the stock from doing what it could do. We think-- we've been not shy in this view. Paramount should sell their block and buy back their own stock. And we say that as a very large Paramount shareholder as well. >> Andrew: Okay. We have Rob in Toronto, go ahead, please. Or in Ontario. Go ahead, please. >> Rob:Yes. I am a first-time caller. >> Ah, good stuff. Thanks for calling. >> Rob:Great show, Andy. Even greater when Eric is on. >> Oh, thank you. >> Andrew: Thank you. >> Rob:Eric, I have built an energy portfolio based on your advice over the past three years and I've done very well, and I appreciate your knowledge. >> Andrew: Good stuff. >> Rob:My question is on Enerplus. It's one of my largest holdings and I'm wondering about this Chord deal, whether I should hold it until it's finalized and they're talking about $1.84 a share payment, I guess, or whether to sell now and reinvest in the Canadian oil patch. >> Yeah, I would view it-- you probably owned Enerplus for a really competent management team and primarily exposure to the North Dakota Bakken play with some gas in the Marsalis. You effectively get that in Chord. >> Andrew: Who are buying them, yeah, yeah. >> Eric: Who are buying them. So, you've getting a larger entity, which with the greater ability to attract institutional investors, which should lead to a re-rating. We own Chord now. We've actually been buying it the past month or so. It's been one of the names that we have bought. So, we have a full position now, it's about a 4% weight for the fund. We have it trading at 3.6 times cash flow and a 13% free cash flow yield. They're returning 75% of that back in the form of buybacks. Raymond James came out with a research report this morning where they did a deep dive and they had a Chord, so, i.e., you know, the buyer of Enerplus, having the deepest inventory, you know, in the Bakken of any producer. They had about nine years of core plus tier one inventory. So again, that speaks to the very underlying positive macro where shale companies have a lot less inventory than what many people believe. So, we think Chord has the ability to drive a re-rating over time. We're carrying about a five multiple now, which honestly as I look at that, that looks low.

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