Birchcliff Energy Ltd. (TSX: BIR) is an intermediate oil and gas company that explores, develops, and produces natural gas, light oil, and natural gas liquids. The company conducts its drilling program in resource plays located in the Peace River Arch region of Alberta.

Key Highlights:

• Increased revenue: During Q1FY22, the company reported an increase in its petroleum and natural gas revenue to CAD 285.96 million against the total revenue of CAD 185.60 million in Q1FY21. The major contribution to the revenue was from the Natural gas segment, which stated the sales of CAD 177.61 million in the Q1FY22 against the revenue of CAD 109.44 million in the Q1FY21.

• Weak liquidity: During Q1FY22, the company reported a lower current ratio of 0.73x as compared to the industry median of 1.0x. Also, the group is taking 36.3 days to complete its cash conversion cycle against the industry median of 1.2 days. The group is taking a longer duration to convert its cash, which causes a lack of liquidity to meet its ongoing business activity.

• Stretched valuations: The company’s stock is currently trading at an NTM EV/Sales multiple of 3.1x which is much higher than the industry (energy) median of 2.6x. On the Price/ Earnings multiple, the stock is offered at 7.2x which is still much higher than the industry median of 2.5x. Higher valuations give discomfort to the investors especially when the markets are going through the current turmoil of rising rates and geopolitical tensions.  

• Increase in operating expenses: The company stated an increase in its operating expenses in Q1FY22 to CAD 23.84 million as compared to CAD 21.49 million in Q1FY21. Further, the overall expenses as Barrel of oil equivalent (boe) also surged to CAD 3.49 against CAD 3.18 in Q1FY21. The increasing operating expenses reduce the operating margins, especially in the trend of rising costs due to inflationary pressure.  

Stock Recommendation:

During Q1FY22, the company reported an increase in the petroleum and natural gas revenue to CAD 285.96 million as compared to CAD 185.60 million in Q1FY21. At the same time, the company is facing headwinds in terms of deteriorating liquidity measures, where the current ratio of the company stood at 0.73x against the industry median of 1.0x. The higher stated NTM EV/ Sales and Price to Earnings multiple also suggests the stock is overvalued valued as compared to its peers. 

Therefore, based on the above rationale we recommend a “Watch” rating on the stock at the last closing price of CAD 10.89 on May 17, 2022.

One-Year Technical Price Chart (as of May 17, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

 Technical Analysis Summary

Disclaimer

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