# Cardinal Energy Ltd.



## Addy (Mar 12, 2010)

Does anyone here know anything about Cardinal Energy Ltd based out of western/central Canada?


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## Ethan (Aug 8, 2010)

I'm interested in these guys too. They came across a screener I ran the other day due to their low PE ratio. Shares are currently trading for $19.22 despite 2013 diluted per share earnings of $2.70. That works out to a PE multiple of ~7. I find them a little tough to value because they keep issuing common shares, $247.5 million in 2013, $28.0 million in Q1 2014 and another $148.0 million in July.

I might take a $10,000 flyer on them in one of my accounts. It's not every day that a PE ratio of 7 comes across my screen.


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## doctrine (Sep 30, 2011)

I took a look, mostly because Cardinal has a reputation of having very, very low decline assets (12-14%). However, the big P/E not based on operating earnings, but a gain on an acquisition. They really seem to be very expensive to be honest if you look at the underlying operations. The P/B of > 2 implies they leverage up (they are very low on debt), perhaps issue more capital and start drilling and producing far more oil, because compared to every other company in this sector (dividend paying small/mid-cap oil producer) they are definitely on the expensive side. They might have been a better deal at the IPO price of $11 when they were closer to a P/B of 1.2 or so, but now it looks like good news is built into the price.


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## Ethan (Aug 8, 2010)

doctrine said:


> However, the big P/E not based on operating earnings, but a gain on an acquisition. They really seem to be very expensive to be honest if you look at the underlying operations.


Good catch. The gains on acquisition are really weird. This is from note 5 to their 2013 annual report.

_Total consideration provided was $210.0 million in cash before closing adjustments with an associated decommissioning obligation of $30.0 million. The Company recorded a $17.2 million gain and $5.8 million deferred tax liability on this acquisition because the fair value of the petroleum and natural gas assets acquired of $259.2 million exceeded the consideration paid._

Cardinal is saying they bought the assets for 10% less than market value. This happened on multiple transactions in 2013. Either Cardinal's management has a knack for finding motivated and/or stupid sellers, or they're being generous with their accounting estimates. This is enough for me to pass on the investment for now.

Thanks for speeding up my due diligence!


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