Gear Energy Ltd. – Value Analysis (TORONTO:GXE) : October 17, 2017

Capitalcube gives Gear Energy Ltd. a score of 34.

Our analysis is based on comparing Gear Energy Ltd. with the following peers – Crew Energy Inc., Journey Energy Inc and Arctic Hunter Energy Inc. (CR-CA, JOY-CA and AHU-CA).

Investment Outlook

Gear Energy Ltd. has a fundamental score of 34 and has a relative valuation of NEUTRAL.

Fundamental Score

Access our research and ratings on Gear Energy Ltd.

Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • It’s current Price/Book of 0.99 is about median in its peer group.
  • GXE-CA‘s EBITDA-based operating performance is better than its peers. The price to EBITDA multiple does not imply high future growth but seems to predict the company will maintain its relatively high operating returns on the existing level of capital.
  • GXE-CA has relatively low net profit margins while its asset efficiency is relatively high.
  • Change in the company’s annual revenues seems to be coming at the expense of earnings.
  • Over the last five years, GXE-CA‘s return on assets has declined from about median to less than the median among its peers suggesting that the company’s historical competitiveness in operations is slipping away.
  • The company’s median gross margin and relatively high pre-tax margins suggest non-differentiated product portfolio but with tight cost control relative to peers.
  • While GXE-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 capital investment program suggests it is under-investing in a business that is producing peer median returns.
  • GXE-CA‘s operating performance may not allow it to raise additional debt.

Access our research and ratings on Gear Energy Ltd.

Leverage & Liquidity

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

  • With debt at 26.97% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 30.62%), and relatively tight interest coverage level of -0.13x, GXE-CA would have a hard time raising much additional debt.
  • Of the 3 chosen peers for the company, only 2 of the stocks have an outstanding debt balance. Companies with no debt include AHU-CA.

GXE-CA has moved to a relatively low liquidity from a Constrained profile at the recent year-end.

  • GXE-CA‘s interest coverage is upward trending but is still within one standard deviation below its five-year average interest coverage of 0.38x.
  • The increase in its interest coverage to -0.13x from -2.33x (in 2016) was also accompanied by an increase in its peer median during this period to 0.63x from -1.26x.
  • GXE-CA‘s debt-EV has increased 10.20 percentage points from last year’s low but is still below its five-year average debt-EV of 36.75.
  • Like the interest coverage trend, the increase in its debt-EV (to 26.97% from 16.77%) was also accompanied by an increase in its peer median during this period (to 30.62% from 17.18%).
  • Relative to peers, debt-EV fell 3.25 percentage points.

Access the detailed analysis for Gear Energy Ltd.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Crew Energy Inc. 34.28 1.43 1.08 33.89
Journey Energy Inc 54.05 0.29 0.17 35.79
Arctic Hunter Energy Inc. 0 2.42 No interest exp 999
Gear Energy Ltd. 26.97 1.76 -0.13 69.05
Peer Median 30.62 1.6 0.63 52.42
Best In Class 26.97 2.42 No interest exp 999

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Company Profile

Gear Energy Ltd. is a exploration and production company. which engages in the acquisition, exploration, and production of oil and gas properties. Its oil and gas properties are located in Alberta, British Columbia and Saskatchewan. The company was founded on June 25, 2007 and is headquartered in Calgary, Canada.


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