Obsidian Energy Ltd. – Value Analysis (NYSE:OBE) : December 21, 2017

Capitalcube gives Obsidian Energy Ltd. a score of 9.

Our analysis is based on comparing Obsidian Energy Ltd. with the following peers – Vermilion Energy Inc., Encana Corporation, Pengrowth Energy Corporation, Sonde Resources Corp., Canadian Natural Resources Limited, Advantage Oil & Gas Ltd. and Baytex Energy Corp. (VET-US, ECA-US, PGH-US, SOQDQ-US, CNQ-US, AAV-CA and BTE-US).

Investment Outlook

Obsidian Energy Ltd. has a fundamental score of 9 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • From a peer analysis perspective, relative outperformance last month is up from a median performance last year.
  • It trades at a lower Price/Book multiple (0.34) than its peer median (0.62).
  • OBE-US‘s EBITDA-based price multiple implies around peer median growth. The market does not seem to expect much improvement in the company’s below peer median EBITDA-based returns.
  • OBE-US‘s relatively low net margins and poor asset turns suggest a problematic operating strategy.
  • Changes in annual earnings are in line with its chosen peers but lags in terms of revenue, implying the company is cost conscious and selective about spending for growth.
  • OBE-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
  • While OBE-US‘s revenues growth has been below the peer median in the last few years, the market still gives the stock a Price/EBITDA ratio that is around peer median and seems to see the company as a long-term strategic bet.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • OBE-US‘s operating performance may not allow it to raise additional debt.

Access our research and ratings on Obsidian Energy Ltd.

Leverage & Liquidity

OBE-US would seem to have a hard time raising additional debt.

  • With debt at 28.57% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 26.59%), and relatively tight interest coverage level of -5.41x, OBE-US would have a hard time raising much additional debt.
  • Of the 7 chosen peers for the company, only 6 of the stocks have an outstanding debt balance. Companies with no debt include SOQDQ-US.

OBE-US has maintained its relatively low liquidity profile from the recent year-end.

  • OBE-US‘s interest coverage is its lowest relative to the last five years and compares to a high of 2.18x in 2014.
  • While its interest coverage decreased to -5.41x from -1.69x (in 2016), its peer median increased during this period to 1.25x from -1.79x.
  • Interest coverage fell 6.77 points relative to peers (and is now lower than its peer median).
  • OBE-US‘s debt-EV is similar to last year’s low of 28.57%, which compares to the 2015 high of 78.18%.
  • Compared to 2016, debt-EV has remained relatively stable for both the company (28.57%) and the peer median (26.59%).

Access the detailed analysis for Obsidian Energy Ltd.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Vermilion Energy Inc. 17.35 0.77 1.15 42.61
Encana Corporation 35.47 1.61 1.36 20.95
Pengrowth Energy Corporation 69.21 1.07 -0.95 11.94
Sonde Resources Corp. 0 7.29 No interest exp 999
Canadian Natural Resources Limited 26.59 0.71 2.91 27.47
Advantage Oil & Gas Ltd. 8.34 0.78 7.99 132.72
Baytex Energy Corp. N/A 0.74 -1.07 17.3
Obsidian Energy Ltd 28.57 0.52 -5.41 14.22
Peer Median 26.59 0.77 1.25 24.21
Best In Class 8.34 7.29 No interest exp 999

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Company Profile

Obsidian Energy Ltd. is a conventional oil and natural gas producer in Canada. It explores and produces oil and natural gas resources. The company engages in the business of acquiring, exploring, developing, exploiting and holding interests in petroleum and natural gas properties and related assets. Its portfolio of properties includes Cardium, Viking and Peace River areas of Alberta. The company was founded on December 27, 1979 and is headquartered in Calgary, Canada.

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