Q: Hi 5i Team,
How do you feel about this company as an income play? It has a high yield but being that oil and gas is a nationalized industry in Colombia does this make the company very high risk?
Would you be buyers for a small income position or would you stay away?
Thanks for all you do!
How do you feel about this company as an income play? It has a high yield but being that oil and gas is a nationalized industry in Colombia does this make the company very high risk?
Would you be buyers for a small income position or would you stay away?
Thanks for all you do!
5i Research Answer:
There is cyclical and political risk, but we think this is well-reflected in the very low valuation (6X earnings). The stock has done well and cash flow is good. We note that on a per-share earnings basis growth has not been that great, and the company is more leveraged than most (debt 4X cash flow). But some allowance can be made because of the importance of the company to the country here (i.e. potential govt. support). The (only paid annually) dividend varies with earnings, but the company is paying plenty of special dividends. It is well beyond our coverage area, but we would still consider it 'decent' for an income investor who understands the cyclicality of the business.