Whitecap Resources Inc.

Whitecap Resources Inc (TSX: WCP) specializes on crude oil and natural gas acquisition, development, optimization, and production in western Canada. The business buys properties that already have found petroleum in place and have low current recovery factors. The primary byproduct of Whitecap's Canadian assets is light oil. 

Why Should Investors Book Profit?

• Sequentially falling net margin: On a sequential basis, the company's net margin profile is declining, which is not a healthy sign. Its net margin shrank from 4.8% to 3.3% in June 2021. Furthermore, it has a lower net margin compared to the industry, indicating that the firm is under pressure.
• Weak liquidity profile: In Q2 2021, the company's current ratio was 0.54x compared to the industry median of 0.99x. This lower ratio against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.
• Higher average collection period: The company is having a higher average Accounts Receivable day of 43.7 days, against the industry median of 39.9 days. A higher average collection period indicates that the organization collects payments slower. This may create a difficulty for the company to have enough cash on hand to meet their financial obligations.
• Exhausting technical indicators: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the stock has touched its previous resistance level and the momentum oscillator RSI (14-Period) is trading at ~70.29 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

The company reported exceptional second quarter result across all areas of the business, achieving record production of 116,799 BOE/d which was 4% above its forecast of 112,000 BOE/d. However, on a sequential basis, its net margin is declining, which is not a healthy sign, and it has a lower net margin compared to the industry, indicating that the firm is under pressure. Furthermore, the resurgence of Delta variant instances is creating a lot of uncertainty, which might have an impact on the company's operations and cash flows if the government enforces certain mandatory lockdowns to combat the spread. Furthermore, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 6.44 on September 24, 2021.

Enerplus Corp

Enerplus Corp (TSX: ERF) produces and develops crude oil and natural gas assets in Canada and the United States. Majority of oil production is derived from the Williston and Waterfloods basins, with the Marcellus providing a significant portion of natural gas production.

Why Should Investors Book Profit?

• Increasing uncertainties: The resurgence of Delta variant cases has raised a lot of questions, and it might have an influence on the company's operations and cash flows as the government may tighten some mandatory lockdowns to combat the spread. This could create a volatility in the price and demand of the crude oil.
• Higher operating expenses: The company's operational expenditures increased to CAD 8.43 per BOE in the most recent financial results, compared to CAD 6.84 per BOE in the prior equivalent quarter. Higher operational costs put a strain on the bottom line.
• Expects higher transportation expenses and cash G&A expenses for FY2021: Transportation costs were CAD 3.45 per BOE in Q2 2021, while cash G&A expenditures were CAD 1.04 per BOE. In FY2021, the firm anticipates an uptick in these costs. Transportation costs is likely to go up to CAD 3.85 per BOE, while cash G&A costs is expected to increase to CAD 1.25 per BOE.
• Exhausting technical indicators: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the stock has touched its previous resistance level and the momentum oscillator RSI (14-Period) is trading at ~70.64 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): Price to Cash Flow 

Stock recommendation

Due to increasing output, the company recorded a solid result in Q2 2021, with cash flow from operational operations of CAD 136.9 million. However, it recorded higher operating expenditures, putting downward pressure on the bottom line. Moreover, it anticipates transportation costs and cash G&A expenses to rise in FY 2021, which is not a good indication. Furthermore, the resurgence of Delta variant instances is creating a lot of uncertainty, which might have an impact on the company's operations and cash flows if the government enforces certain mandatory lockdowns to combat the spread. Moreover, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 9.09 on September 24, 2021. 

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.