Q: Hi Guys,
I'm looking at a couple of smaller oil and gas companies and wanted to get your thoughts. i3 Energy and Gear Energy. Both of them got into a little trouble this year when they implemented a unstainable dividend. Their dividends have been dropped to a sustainable level, but both of their share prices took a pretty good hit for that. However it looks like they have good cash flow, both are paying down debt, and they seem to have pretty good land packages. I was thinking with all the cash floating around the oil patch right now, both would be pretty good takeout targets. Curious on your thoughts and if they would be a good hold.
Thanks,
I'm looking at a couple of smaller oil and gas companies and wanted to get your thoughts. i3 Energy and Gear Energy. Both of them got into a little trouble this year when they implemented a unstainable dividend. Their dividends have been dropped to a sustainable level, but both of their share prices took a pretty good hit for that. However it looks like they have good cash flow, both are paying down debt, and they seem to have pretty good land packages. I was thinking with all the cash floating around the oil patch right now, both would be pretty good takeout targets. Curious on your thoughts and if they would be a good hold.
Thanks,
5i Research Answer:
We would largely agree. Momemtum is negative, and both wil likely see tax loss selling, but both are very cheap, still offer high yields after the adjustments, and both have solid balance sheets and land positions. GXE's debt is about 0.3X cash flow. ITE's is also about 0.3X. GXE has already set up a strategic review which could lead to a possible sale. It also has substantial tax pools as an extra asset for a buyer. For ITE the buying pool may be smaller, with it based in the UK. Also the shares are tightly held, with four entities holding about 60% of the stock. We are sure they would likely object to a takeover after a 47% decline in the stock this year. But, it is 4X earnings, and all things considered very cheap.