Yangarra Resources Ltd.

Yangarra Resources Ltd. (TSX: YGR) is a oil and gas company which is engaged in the exploration, development, and production of natural gas and oil with operations in Western Canada. The company has its operations in Central Alberta. The company generates its revenue from the sale of crude oil and natural gas products.

Key Updates:

• Stretched Technical: On a daily chart, the YGR stock is trading at the upper band of its 20-days Bollinger band, which suggests a possible correction from the current trading level. Moreover, the 14-days RSI is hovering at the overbought zone of 63.96, which also suggest a probable profit booking in the coming trading sessions.

Technical Price Chart (as on January 04, 2002) Source: REFINITIV, Analysis by Kalkine Group

• Weak debt-protection metrics: In Q3FY21, the company reported net debt to EBITDA of 7.59x, as compared to the industry median of 5.74x. A higher ratio suggests a weak debt-protection ability of the firm. Moreover, the company’s long-term debt to total capital at the end of Q3FY21 stood at 36.7%, higher than the industry median of 29.7%, which also remains as a key concern.
  

• Lower production: On 9MFY21, the company reported lower natural gas production of 27,515 *mcf/day, as compared to 33,103 mcf/day in pcp. Notably, combine production stood at 8,550 **BOE/day in 9MFY21, as compared to 10,129 BOE/day in pcp. The above remains as a key concern and continuation of the above trend might result to lower cash flows.

              *BOE=barrel of oil equivalent 

            ** Mcf= 1,000 cubic feet of natural gas

Valuation Methodology (Illustrative): EV to Sales

Analysis by Kalkine Group 

Stock Recommendation:

In Q3FY21, the group reported its current ratio of 0.82, as compared to the industry median of 0.95. The above indicates that the company is struggling to meet its current liabilities with its current assets. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit downside (in percentage terms) upside. For the said purposes, we have considered peers like Gear Energy Ltd, Yangarra Resources Ltd etc. Considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of YGR at the current market price of CAD 1.74 at 10:06 am Toronto time on January 05, 2022.

One-Year Technical Price Chart (as on January 05, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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