Imperial Oil Ltd 

Diversified business with Cost Cutting Synergies to Retain Business Performance: Imperial Oil Ltd (TSX: IMO) is Canada’s leading integrated oil company. Being an integrated company, Imperial Oil is engaged in the entire value chain including exploration, refining, and marketing of oil and natural gas.

On January 31, IMO declared a quarterly dividend of CAD 0.22 per share. Notably, the company is a Dividend Aristocrat and has increased its dividends for 25 consecutive years. In 2019, the company paid dividend worth CAD 631 million, as compared to CAD 572 million in FY18. The company also repurchased 38.7 million shares at a total price consideration of CAD 1,373 million, which reflects ~5% of total outstanding shares. 

Production from overall upstream gross oil-equivalent averaged at 398,000 barrels per day followed by the production of total liquid of 374,000 barrels per day for FY19. The company reported an average refinery throughput of 353,000 barrels per day and petroleum product sales of 475,000 barrels per day.

FY19 Financial Highlights: For the period ended December 31, 2019, IMO posted its full-year revenue of CAD 34,002 million, decline from CAD 34,964 million in FY18. Decline in the downstream and chemical revenues remained a drag, partially offset by growth in the upstream division. Net income stood at CAD 2,200 million, stood lower than CAD 2,314 million in FY18. The decline was due to the combined effect of shrinking downstream and chemical revenues with declining margins, and negative impacts form net planned turnaround and higher operating expenses. Capital expenditure stood higher at CAD 1,636 million, as compared to CAD 1,491 million in FY18. During the period, the company made capacity addition at Kearl, investments in Aspen in-situ project and strengthened its distribution and refining segments.

FY19 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: P/CF Based Relative Valuation

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation: The stock of IMO is trading at CAD 17.20, with a market capitalization of CAD 12.79 Billion. The stock price corrected ~39% and ~53% in the last one month and one-year, respectively. The stock made a sharp recovery of ~15.75% in the last five trading sessions and outperformed the index by 11.03%. The stock is offering a lucrative annual dividend yield of 5.116%. The crude oil prices have corrected big-time primarily due to oversupply across the global markets on account of lower demand due to COVID 19 pandemic and price war among Saudi Arabia and Russia. To cope up the with the situation, IMP has lowered its total capital and exploration guidance within the range of CAD 1.1 billion to CAD 1.2 billion in FY20 from its earlier guidance of CAD 1.6 billion to CAD 1.7 billion. The company also prioritizing on cost-cutting synergies and is likely to reduce its operating expenses by CAD 500 million from FY19.The company has a diversified set of businesses and a part of the business is dependent on crude oil prices. IMO stock corrected significantly and looks undervalued, as compared to the peers. We expect oil price to gradually increase, thus driving the upside in IMO stock.  We have valued the stock using P/CF based relative valuation methodology and took Enbridge (TSX: ENB) and TC Energy (TSX: TRP) etc. as peer group. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 17.20 as on April 06, 2020.

IMO One-Year Daily Price Chart (Source: Thomson Reuters) 

Canacol Energy Ltd (CNE)

Canacol Energy Ltd (TSX: CNE) is an oil company, engaged in the business of exploration and production of oil and natural gas in Colombia.

On 20^th March 2020, Canacol Energy Ltd announced the appointment of Mr Ari Merenstein as an independent director.

Financial Highlights – Q4 and Financial Year 2019 (31^st December 2019, US$)

Financial Highlights (Source: Company Reports)

For the financial year ended December 31, the company’s revenues increased by 8% to US$ 219,522, as compared to US$ 204,151 in FY18. The company’s revenue in Q4 FY19 increased 30% to US$ 65,795, as compared to US$ 50,727 in Q418. The adjusted funds from operations stood at US$ 124,915 in FY19, up 19% on a year-over-year basis. In the Q419, the adjusted funds from operations increased by 15% to US$ 33,004 versus US$ 28,679 in Q418.The net income stood at US$ 34,247 in FY19 versus a net loss of US$ 21,835 in FY18. The net income in Q419 stood at US$ 25,432 versus a net loss of US$ 16,272 in the Q4 of the financial year 2018. The group’s basic and diluted earnings per share stood at US$ 0.19 in the financial year 2019 versus a basic and diluted loss per share of US$ 0.12 cents in FY18. The group’s basic and diluted earnings per share stood at 0.14 cents in the Q4 of the financial year 2019 versus a basic and diluted loss per share of 0.09 cents in Q418.The group’s cash balance (cash and cash equivalents) stood at US$ 41,239 as on December 31, 2019, down from US$ 51,632 in the prior year.

Canacol Energy Ltd shares were trading at CAD3.65, up by 1.39 per cent, after the market closed on 6^thApril 2020. Stock's 52 weeks High is CAD 5.05 and Low is CAD 2.69.

Stock Recommendation: CNE impressed with its financial performance in the fourth quarter. Both the top and bottom-line showed impressive growth. The company reported an increase of 52% in realized gas sales, while EBITDA surged by 36% year-over-year. Supply glut and plunge in oil prices has taken a toll on the stock prices of oil companies including CNE. So far this year, CNE stock is trading about 26% lower (that’s including the recent recovery in the last few trading days). While near-term challenges persist, we expect oil prices to improve gradually, which will fuel sharp recovery in oil & gas stocks including CNE. Further, expansion of the gas business in Colombia, and the extension of the transportation infrastructure bodes well for growth. 

Given the uncertainty surrounding the economy, we maintain a "Speculative Buy" recommendation on CNE at the closing price of CAD 3.65 (as on April 6, 2020).

CNE One-Year Daily Price Chart (Source: Thomson Reuters)

Disclaimer

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