Its production and cash flow might be down, but this 3.4% dividend payer is using its drilling success to aggressively pay down its debt. That ongoing oil and gas production—plus improved natural gas prices—will also strengthen its balance sheet.
In the meantime, market challenges for the industry mean you can pick up this producer’s shares for just 1.3 times its projected 2019 cash flow.
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BONAVISTA ENERGY $1.18(Toronto symbol BNP; Shares o/s: 255.4 million; Market cap: $306.5 million; TSINetwork Rating: Speculative; Divd. yield: 3.4%; www.bonavistaenergy.com) explores for oil and gas in B.C., Alberta and Saskatchewan. Its output is 70% gas and 30% oil.
In the quarter ended September 30, 2018, the company’s cash flow fell 7.0%, to $63.7 million, or $0.25 a share, from $68.5 million, or $0.29, a year earlier. The decline was mainly because production fell 4.4%, to 68,036 barrels of oil equivalent per day from 71,191.
The company likely spent $155 million on exploration and development in 2018. That was down 46.6% from $290 million in 2017. It’s also why Bonavista’s production was down in the latest quarter, despite its ongoing drilling success. The company will spend an estimated $150 million in 2019.
Penny Stocks: Ready to drill more while valued at just 1.3 times cashflow
The lower spending should help Bonavista continue to pay down its long-term debt. It currently stands at $760.2 million, or 2.5 times the stock’s depressed market cap. While that remains high, it’s down from $1.2 billion at the start of 2016.
The stronger balance sheet will let the company raise funds to increase drilling when natural gas prices move higher. It should also let it maintain its dividend, which yields 3.4%. The stock currently trades at just 1.3 times the forecast 2019 cash flow of $0.94 a share.
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