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  5. BIR: Thoughts on BIR. [Birchcliff Energy Ltd.]
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Q: Thoughts on BIR. I was thinking of buying more, but I believe the current dividend is not sustainable without incurring more debt, so do you think they will reduce it until NG prices pick up? If so, will the price drop, or do you think the possibility is already priced in? Is their balance sheet good? And finally, what are their reserves like? Thanks!
Asked by Donald on September 05, 2023
5i Research Answer:

In January, BIR raised its dividend from 2c to 20c. Such a big move raised questions, but at the time the company indicated it was fine with its sustainability. But no dividend is guaranteed. Weak NG prices has seen the stock decline 10% YTD, so yield is now 9.4% so we understand the concern. But, the balance sheet is strong, with debt barely at six months of cash flow. Payout ratio (12 months) is less than 30%. This only includes six months at the 'new' rate, but even so payout ratio is reasonable considering the low debt. On a book value basis, BIR has more than $3B in oil/gas reserves. We would have 'reasonable' confidence that the dividend will not be cut this year, and future decisions will be more likely based on gas prices. We think a cut seven months after such a big raise would be more of a surprise to investors.