Monday, June 29, 2015

Analysis of Encana


Encana, a Canadian energy company

Company: Encana

ISIN CA2925051047 | WKN 798291 

Business: A Canadian energy producer. They are standing on three legs by: Natural Gas, Oil and finally Natural Gas Liquids, which when it comes down to it is one and the same leg that they are standing on and the extraction is being done via shale operations in most cases as I understood it.

Active: North America so Canada and the US of A.

P/E: 3.0

Comment: They are listed in the US and their financial statements are in USD so therefore I based also the analysis on that.


This company was analysed due to a request posted on the Analysis Requests page. 

contrarian values of P/E, P/B, ROE as well as dividend for Encana

The P/E for Encana is excellent with 3.0 which comes from doped earnings in the size of 3.4 billion USD from divestment and the P/B is also good with 1.0 which gives a go from Graham. The earnings to sales are looking excellent with 0.4 but it comes largely from them reporting as getting dividends from daughters and therefore having no real revenue and the ROE is then also excellent with 35%. the book to debt value is looking disturbingly low considering it is a North American company that recently sold around 100 million new shares.
In the last five years they have had a yearly, their, "revenue" growth of -2% which is awful and this then gives us a motivated P/E of 8 which means that Encana is undervalued on the market today.
They pay an ok dividend in the size of 2.3% which corresponded (based on the doped earnings) only to 6.9% of their earnings so at least they could pay it out without too much issues back then.

Conclusion: Due to the divestment in 2014 it becomes a buy from Graham but for me it is a clear no go. They did in 2014 actually make a loss, they kept paying a dividend most likely due to having over 60% institutional investors, they issued 100 million more shares and in their first quarter, so Q1 2015, they took a heavy impairment loss and I am not sure it will end there. Since they have no downstream they also have no way to push up the margins on downstream sale of products which means they are forced to live on the current market prices of oil and gas. So Encana looks good at a first glance but it is of no interest to me at this moment.

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