Precision Drilling: In Line with Its Peers

Precision Drilling Trust (PDS) trades at a major discount to some of its rivals, largely because of its highly-levered balance sheet. But Blackmont Capital analyst Roy Ma still thinks it should be worth more.

"Given [Precision's] favourable market positioning compared with its peers, an in-line quarter financially and operationally with the industry and some cash flow protection from contract commitments, we believe a discount in its valuation is unwarranted," he wrote in a note to clients. He added that he expects the company to pay down its debt "meaningfully" in 2010.

Mr. Ma increased his valuation multiples on the stock, and raised his price target to C$8.00 a share (from C$6.50) as a result. That brings it up to its peers. He said the attractive valuation compensates investors for taking on the higher leverage, and that Precision offers potential growth from international expansion initiatives.

He also noted that Precision has secured term contract commitments for about 23% of its rigs for the rest of 2009, and 15% in 2010. That is in line with Ensign Energy Services Inc. (ESVIF.PK) and behind only Trinidad Drilling Ltd. (TDGCF.PK) in his coverage universe.

Comments

[Alan Young:]

PDS is a trust, rather than a corporation, so investors expect to be paid out of current cash flow. They abruptly cut the distributions in February, diluted the value of existing units with a new offering, and weighed down the balance sheet with debts that will impede cash return for years. Why should it be surprising that investors do not find this attractive?

May 21 11:01 PM

[PeteK:]

PDS is now one of the biggest drillers in North America.
With an excellent team and the best technology in this field,
PDS will surpass others in the future.
The share price now is way more than reasonable for future
cash return and potential appreciation. Plus, the USA is buying more
and more Canadian Oil, this alone will mean lots for PDS.
If this is not attractive, don't know what else is !!
Also, PDS is the "National Pride" of Canada.
Highly respected.

May 23 03:05 AM

[Ellito:]

PDS is years ahead in technology.
Save time and money.
No match at all in this field.

Jun 14 05:43 PM