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Pramod Jindal

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  • Why Is Suncor Energy A Good Buy Right Now? [View article]

    As highlighted in my analysis, WCS is not a driver for driver. Suncor sells only a small amount of Bitumen;most is upgraded which in FY 2011 was sold at a premium to WTI. I agree with you that until pipelines come online, growing bitumen production from Western Canada will hammer WCS. However, this is even better for Suncor as Suncor will continue upgrading bitumen to sustain higher netbacks than its peers. While everyone is entitled to his/her opinion, all I can conclude is that Suncor is uniquely positioned and has not been understood well by the markets.
    Mar 1, 2013. 08:39 PM | 3 Likes Like |Link to Comment
  • Why Is Suncor Energy A Good Buy Right Now? [View article]
    What does the latest announcement of scrapping Voyageur upgrader mean?

    Suncor announced, after the market closed, that it will no longer pursue the Voyageur project. Scrapping Voyageur is negative information but is not “news” as it was clearly signaled through the Q4 2012 impairment charges. With North West Redwater project set to become operational by 2016, market would see another 150,000 bpd of light SCO. SCO from Voyaguer would have further added to the supply of light SCO which is experiencing shrinking market because some of the refineries have already begun processing heavy oil. The over-supply of SCO and subsequent decline in SCO-WTI premium were highlighted as potential risks in the report above. However, Suncor is shielded from declining prices of SCO-WTI differential to a certain extent. As highlighted in the report above, so long as Suncor’s refining throughput is greater than its daily production, existing operational upgrading capacity of Suncor would continue to allow Suncor to capture the differentials along the value chain and generate superior returns. Given the current throughput and daily production level, a dollar lost by the oil sands business would get compensated by a dollar gain in the refineries.

    Is Suncor still a buy? Is it still a right time to go long?

    Suncor is a good buy even now and this negative information makes it even a better time to buy this stock. I am maintaining my buy rating on the stock.
    The market, however, is not going to like this information when markets open tomorrow. The announced write-offs and impairment would definitely suppress earnings but the fundamental attractiveness of Suncor has not changed. High oil content in reserves & production, growth from the low-cost in-situ operations, high refining crack-spread, oil-sands integrated refineries etc. have not changed and Suncor remains undervalued on both absolute and relative levels. Upgrading capacity from Voyaguer project and the subsequent cash flows were not part of my initial price target. Hence, the price target still remains the same. If anything, this information might lead to a temporary over-reaction and would create a window to get exposure to a fundamentally attractive company at a lower price.
    Mar 28, 2013. 12:29 AM | 1 Like Like |Link to Comment
  • Why Is Suncor Energy A Good Buy Right Now? [View article]

    This maybe a billion $ question. While no one may no for sure but the trends,as I highlighted, look favorable for Suncor. Going back to security analysis 101, the stock rises not just because a company reports profits but because a company reports abnormal profits (i.e. higher than its peers or industry or cost of capital). Relative immunity from price differentials, growing production from low-cost in-situ operations, high oil content in reserves and production, highest % of proven reserves developed, oil-sands integrated refineries etc.- all make Suncor a good company. Current valuations are very low, which makes this good buy a good buy at the moment.
    Mar 1, 2013. 08:46 PM | 1 Like Like |Link to Comment
  • Why Is Suncor Energy A Good Buy Right Now? [View article]
    Suncor missed the last quarter primarily for two reasons
    1) $1.47B impairment
    2) downtime in upgraders

    As mentioned in my report, it appears that impairment was taken when the time was right. Likely the reason the stock is depressed. However, this is exactly one of the reasons why this is a great buy at the moment. Quality reserves, relative immunity from price differentials, high oil content, highest % of 1P developed reserves, growing low-cost in-situ operations etc make this a good company, and the big bath makes it a good time to buy!
    Mar 1, 2013. 12:11 AM | 1 Like Like |Link to Comment
  • Why Is Suncor Energy A Good Buy Right Now? [View article]
    Thank you Mrj2119. Feedback is much appreciated.
    Feb 28, 2013. 01:12 PM | 1 Like Like |Link to Comment
  • Why Is Suncor Energy A Good Buy Right Now? [View article]
    Thank you RS055. I concur that in the long term inefficiencies will vanish. I also agree that Suncor's reserves (69% of its 1P reserves are developed- highest among its peers) are the least risky compared to its peers. Also, Suncor is less exposed to the environmental risks because the production growth is projected to come from in-situ operations, which are associated with less land disturbance.
    Feb 28, 2013. 01:10 PM | 1 Like Like |Link to Comment
  • Why Is Suncor Energy A Good Buy Right Now? [View article]
    Dear Rjj1960,

    Your comments are applicable to almost all Canadian oil and gas companies. As mentioned in the SWOT analysis, I am not a fan of the way Suncor buys back shares, and how Suncor is reducing the leverage. Having said that however, my entire thesis and analysis is based on how Suncor is uniquely positioned to take advantages of the inefficiencies that exist currently and the trends going forward. As highlighted in my analysis, the delays in pipelines works out to be an opportunity for Suncor Energy as it will continue to capture the differentials.
    Feb 28, 2013. 01:04 PM | 1 Like Like |Link to Comment
  • Why Is Suncor Energy A Good Buy Right Now? [View article]
    I have been getting queries on my analysis of Suncor's latest $1 billion sales of natural gas assets and the recent performance of the stock. Here are my two cents!

    A great decision to get rid of natural gas assets:
    I am yet to completely analyze Suncor's selling natural gas assets but I do know that Suncor had more natural gas production level than it consumed for its upgraders, exposing Suncor to low natural gas prices and reducing Suncor's return on equity. Suncor had been divesting its natural gas assets and Suncor had very clearly hinted in its annual report about further divestitures of its natural gas assets. Shale gas boom, talks about conversion of natural gas pipelines into crude oil, long-winded process of changing trucking into natural gas-all these make investors concerned about the attention an oil company can pay to its bleeding part of the business. Even looking at futures market for natural gas, the price is not expected to high until 3-5 years from today. In my report I had highlighted that natural gas assets contribute close to 0% to Suncor's stock price. So getting a billion $ in cash (~ $0.64/share) for gas reserves is not a bad deal for Suncor.

    Over-reaction by the market:
    Suncor, like any other North American stock, was hammered yesterday primarily because of alarming Chinese data. The sell-off news along with Chinese data led to over-reaction by the market. This price level ($26-27) is unreal and a great window to go long on Suncor. Its the news that moves the stock and sometimes investors over-react to the news.Stock was down 6% yesterday and its up 4% today. Suncor's fundamentals have improved by selling the natural gas assets. Suncor clearly deserves more credit for this.
    Apr 16, 2013. 04:18 PM | Likes Like |Link to Comment
  • Why Is Suncor Energy A Good Buy Right Now? [View article]
    Thank you Eli for sharing 3/5 ratings by Barron's. I definitely did not see that coming! It is the appreciation that keeps an artist motivated, and I hope to continue bringing out quality and proprietary insights through my research reports.
    Mar 7, 2013. 11:31 AM | Likes Like |Link to Comment
  • Why Is Suncor Energy A Good Buy Right Now? [View article]
    The reason I'm not a fan of SU's policy of reducing debt is that this policy has been suppressing the ROE of the firm. A little bit of algebra on ROE=Net Income/Book Value of Equity would give ROE= Operating Return on Assets+ Leverage* (spread between Operating Return and Borrowing costs). This explains that if a firm can afford more leverage, it should. As you can see in the ROE table in the ratio analysis, Suncor's reducing debt has clearly reduced the ROE. If Suncor would have maintained 2010 leverage in 2011, its modified 2011 ROE would have been 6% higher than its actual ROE. Not just this, Suncor's reducing leverage sends a negative signal to the market, which exacerbates market's generic concerns about Canadian oil and gas industry (even though most of those concerns are not as applicable to Suncor as to its peers). While this depresses stock, Suncor keeps announcing share buy backs!! Having more debt helps if one can afford it, and Suncor has sufficient room in its leverage ratio to add more debt.
    Mar 3, 2013. 06:37 PM | Likes Like |Link to Comment
  • Why Is Suncor Energy A Good Buy Right Now? [View article]
    Dr George W. Barclay Jr.

    I agree with your the investment time horizon and your long position on Suncor. However, I don't quite agree with the logic based on P/E multiple analysis. P/E multiple makes our life very easy but is highly deceptive especially with varying capital structures across firms, different accounting treatments leading to un-comparable earnings, and varying ROEs tempering P/E etc. There is plethora of documents available on why not to use P/E for making investment decisions. While markets may be earnings fixated, it pays to know how the earnings were calculated/arrived at. In case of Suncor, P/E analysis may have yielded the right color but P/E is not generalize-able for the reasons I mentioned. Some people define luck as "Bad system and good outcome".
    Mar 2, 2013. 01:49 PM | Likes Like |Link to Comment