Disclaimer: This is not investment advice, nor is it a recommendation to buy or sell shares in the company/companies mentioned.
Read Full Disclaimer
The information contained herein is accurate to the best of the author’s knowledge, but the material and interpretations contained herein should be independently verified by any party using this information as part of any research, editorial, or decision making process. Any views expressed here represent the author’s opinion only, and as such readers should do their own research and come to their own conclusions if they are using the opinions contained herein as part of any larger due diligence process. The author may have long or short positions in the companies mentioned and may be buying or selling in the market depending on which way the wind is blowing at any given moment. Opinions are subject to change without notice. Prospective resources, predictions, comparisons, financial projections, and extrapolated metrics are, by their nature, subjective and interpretation dependent. The topics covered are highly speculative and involve a high degree of uncertainty and risk. Speculative companies can and do go to zero. By using this site, you agree that the author(s) and Hydra Capital is/are not responsible for any damages incurred by the use of the presented materials. Anyone reading these blog posts should know that they are the author’s thoughts and opinions, which are not to be confused with or construed as research reports.
Disclosure: The following represents my opinions only. I am long TNZ.TO
I wasn’t planning on writing a note after last night’s tuck-in acquisition by Tenaz Energy (TNZ.TO, last at $2.55) where it basically doubled its stake in its Netherlands gas and infrastructure portfolio, but a mere 9% rise on the news left me wondering if the market fully appreciates the nuances of what’s transpired, so here I am to give my take. I’ve said before that I believe that TNZ represents one of the best risk-rewards I’ve ever seen in the market and I’ll double-down on that statement today. When its most recent acquisition closes (expected in Q3), TNZ will have positive working capital of around $65 million, or about $2.35/share, which means that at today’s closing price of $2.55, the market is valuing TNZ’s pro-forma production base of ~2,800 boepd at only 20 cents per share, or about $5.5 million. That is not a typo. TNZ’s asset base will generate run-rate cash flow of something in the neighbourhood of $35 million per year, $10 million of which will be free cash flow in 2023… and the market is valuing that cash flow stream at just $5.5 million. For those who prefer to think in terms of cash flow multiples, TNZ is trading at an EV/CF multiple of 0.16x. Also, not a typo. This is in a sector where dirt cheap would be 1.5x EV/CF and a “normal” multiple might be around 3-4x EV/CF — and just to say it again, TNZ is trading at 0.16x EV/CF at today’s closing price of $2.55.
