Seeking Alpha
Profile| Send Message| ()  

Buy-recommended Canadian Oil Sands Trust (OTCQX:COSWF) offers unlevered appreciation potential of 40% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of US$38 a share, reduced from US$42. Our discounted cash flow calculation of NPV includes higher future expense than previously as we take a cue from latest guidance for 2010.

Fourth quarter results released after the January 28 market close detail unlevered cash flow (Ebitda) close to our expectations of three months ago, after adjusting for unplanned downtime in November. Nonetheless, management chose not to raise the quarterly distribution, contrary to our expectations.

Subject to a vote of shareholders at the annual meeting on April 29, COSWF expects to convert to a corporation at year end. Similar to actions at other income trusts about to lose their tax status that supported higher distributions, COSWF already appears to be setting its distribution level on a more typical corporate basis. Thus, instead of estimating distributions a trust would normally pay, we simply use the latest quarterly declaration, as we do for most corporations, as an indication for the year ahead. Amply supported by industry conditions, the current distribution indicates a 5% annual yield at latest stock price. The distribution and NPV are sensitive to oil price for which the trend continues positive.

Futures prices for the next six years at $83 a barrel are above the 40-week average of $81. Before results were released, COSWF stock price closed 1% above its 200-day average.

Originally published on January 29, 2010.

Source: Canadian Oil Sands Chooses Not to Raise Distribution