Cardinal Energy Ltd. – Value Analysis (TORONTO:CJ) : September 22, 2017

Capitalcube gives Cardinal Energy Ltd. a score of 41.

Our analysis is based on comparing Cardinal Energy Ltd. with the following peers – Hemisphere Energy Corporation, Ikkuma Resources Corp., Tamarack Valley Energy Ltd., Journey Energy Inc and Pennine Petroleum Corp. (HME-CA, IKM-CA, TVE-CA, JOY-CA and PNN-CA).

Investment Outlook

Cardinal Energy Ltd. has a fundamental score of 41 and has a relative valuation of NEUTRAL.

Fundamental Score

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Company Overview

  • From a peer analysis angle, relative underperformance over the last year has improved more recently.
  • It’s current Price/Book of 0.60 is about median in its peer group.
  • CJ-CA‘s EBITDA-based price multiple implies around peer median future growth. The market seems to expect the company to maintain the peer median EBITDA-based return it currently generates.
  • CJ-CA‘s relative asset efficiency and net profit margins are both around the median level.
  • Changes in annual revenues (relative to peers) are better than the change in its earnings (relative to peers), implying the company is focused more on revenues.
  • Over the last five years, CJ-CA‘s return on assets has declined from above median to about median among its peers, indicating declining relative operating performance.
  • The company’s relatively low gross margin and median pre-tax margin suggest operations may be constrained on pricing versus peers.
  • While CJ-CA‘s revenues in recent years have grown faster than the peer median, the market gives the stock a Price/EBITDA ratio that is around peer median suggesting that the market has some questions about the company’s long-term strategy.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • CJ-CA seems too levered to raise additional debt.

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Leverage & Liquidity

CJ-CA would seem to have a hard time raising additional debt.

  • With debt at a relatively high 35.09% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 35.41%), and relatively tight interest coverage level of -4.19x, CJ-CA would have a hard time raising much additional debt. The company has a Constrained profile in terms of its ability to take on further debt.
  • All 5 peers for the company have an outstanding debt balance.

CJ-CA has moved to a Limited Flexibility from a Constrained profile at the recent year-end.

  • CJ-CA‘s interest coverage is upward trending and is above (but within one standard deviation of) its five-year average interest coverage of -8.66x.
  • The increase in its interest coverage to -4.19x from -9.11x (in 2016) was also accompanied by an increase in its peer median during this period to -2.89x from -6.82x.
  • Interest coverage rose 0.99 points relative to peers.
  • CJ-CA‘s debt-EV is its highest relative to the last five years and compares to a low of 2.26% in 2013.
  • Like the interest coverage trend, the increase in its debt-EV (to 35.09% from 12.30%) was also accompanied by an increase in its peer median during this period (to 35.41% from 17.11%).
  • Relative to peers, debt-EV rose 4.49 percentage points.

Access the detailed analysis for Cardinal Energy Ltd.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Hemisphere Energy Corporation 35.72 0.08 -1.59 15.59
Ikkuma Resources Corp. 50.84 1.79 -5 28.62
Tamarack Valley Energy Ltd. 22.01 0.93 -0.33 70.29
Journey Energy Inc 54.05 0.29 0.17 35.79
Pennine Petroleum Corp. 1.05 12.74 -52.3 -1066.2
Cardinal Energy Ltd. 35.09 0.91 -4.19 29.81
Peer Median 35.41 0.92 -2.89 29.21
Best In Class 1.05 12.74 0.17 70.29

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Company Profile

Cardinal Energy Ltd. engages in the exploration, development and production of oil and natural gas. Its projects include slave lake, wainwright and bantry. The company is focused on operations in Alberta and Saskatchewan. Cardinal Energy was founded on December 21, 2010 and is headquartered in Calgary, Canada.

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