Using the Enterprise Value (EV) to Sales ratio can provide good insight into potentially undervalued Canadian energy stocks
SmallCapPower | November 1, 2016: The Enterprise Value to Sales (EV/S) Ratio is used to measure how much you would pay for a company’s revenue. The EV/S ratio is seen as a more accurate measure than the Price to Sales (P/S), as it accounts for the debt in a company’s capital structure, compared to the P/S which only uses market capitalization. As the company will have to pay back the debt, by including it you get a more holistic picture of the company. If a company has a lower EV/S ratio it is said to be undervalued and a more attractive buy. However, EV/S ratios differ between industries so like all other comparable ratios, you mostly use companies in the same industry to determine what a small or larger ratio is. That being said, the Canadian energy stocks on our list today are all oil & gas exploration and production companies with market capitalizations under $2 billion and revenues exceeding $1 million over the last 12 months. As the industry median for these producers was an EV/S ratio of 4.6x, these companies could be seen as undervalued yet potentially susceptible if the oil price begins to slide.
Perpetual Energy Inc. (TSE:PMT) – $1.83
Oil & Gas Exploration and Production
Perpetual Energy Inc. (Perpetual) is a Canada-based oil and natural gas exploration and production company engaged in finding, developing, producing and marketing natural gas, natural gas liquids (NGL), oil and bitumen. Perpetual’s business consists of operations in Alberta focused on exploring and developing the natural gas and NGL resource opportunities in the deep basin in west central Alberta; the exploration for and extraction of heavy oil in eastern Alberta; the development and production of shallow natural gas from mature producing regions in eastern Alberta; bitumen opportunities in northeast Alberta, and interest in a commercial gas storage business through the operation and ownership in a gas storage facility at Warwick in east central Alberta.
- Market Cap: $96.23(mm)
- Revenue (LTM, CAD, Millions): $107.55
- Enterprise Value (CAD, Millions): $106.61
- EV/REV Multiple: 0.99x
TransGlobe Energy Corp. (TSE:TGL) – $2.48
Oil & Gas Exploration and Production
TransGlobe Energy Corporation is an oil exploration and production company. Its activities are concentrated in the Arab Republic of Egypt (Egypt). It holds interests in various production sharing concessions (PSC) in Eastern Desert Egypt and Western Desert Egypt. Its blocks in Eastern Desert Egypt include West Gharib, which covers approximately 34,860 acres; West Bakr, covering over 11,600 acres; North West (NW) Gharib, covering approximately 162,000 acres; South East (SE) Gharib, which covers over 125,650 acres, and South West (SW) Gharib, covering approximately 48,310 acres. Its blocks in the Western Desert Egypt include South Alamein, covering approximately 335,830 acres; South Ghazalat, covering over 465,300 acres, and North West (NW) Sitra, covering approximately 480,850 acres.
- Market Cap: $179.23(mm)
- Revenue (LTM, CAD, Millions): $87.66
- Enterprise Value (CAD, Millions): $109.87
- EV/REV Multiple: 1.25x
Orca Exploration Group Inc. (CVE:ORC.B) – $4.10
Oil & Gas Exploration and Production
Orca Exploration Group Inc. is a Canada-based company, which is engaged in the hydrocarbon exploration, development and supply of gas in Tanzania, and oil appraisal and gas exploration in Italy. The Company has interests in a Production Sharing Agreement (PSA) with the Tanzania Petroleum Development Corporation (TPDC) and the Government of Tanzania in the United Republic of Tanzania. This PSA covers the production and marketing of a gas from the Songo Block offshore Tanzania. The Company has an agreement to farm in on Central Adriatic B.R268.RG Permit offshore Italy.
- Market Cap: $148.29(mm)
- Revenue (LTM, CAD, Millions): $82.58
- Enterprise Value (CAD, Millions): $130.93
- EV/REV Multiple: 1.59x
Anderson Energy Inc. (TSE:AND) – $2.01
Oil & Gas Exploration and Production
Anderson Energy Inc. is a Canada-based resource-based oil and gas development company. Its principal property is in central Alberta in the Willesden Green area. The Company is focused on horizontal drilling opportunities for cardium light oil. Anderson’s core area is Anderson, where Greater Willesden Green is centered approximately 150 kilometers northwest of Calgary, Alberta. This area includes not only the defined Willesden Green field, but also portions of the Buck Lake and West Pembina fields. The Anderson’s oil production is light and sweet crude. The Company’s portfolio also includes a horizontal oil development project, which is located in central Alberta in the Duvernay Carbonates.
- Market Cap: $35.75(mm)
- Revenue (LTM, CAD, Millions): $16.74
- Enterprise Value (CAD, Millions): $27.17
- EV/REV Multiple: 1.62x
TAG Oil Ltd. (TSE:TAO) – $0.85
Oil & Gas Exploration and Production
TAG Oil Ltd. (TAG) is an oil and gas producer and explorer with operations and production infrastructure in the Taranaki Basin of New Zealand. The Company’s property, Taranaki Basin, is an oil, gas and condensate rich area located on the North Island of New Zealand. The Taranaki Basin covers an area of approximately 100,000 square kilometers.
- Market Cap: $52.93(mm)
- Revenue (LTM, CAD, Millions): $23.27
- Enterprise Value (CAD, Millions): $37.90
- EV/REV Multiple: 1.63x
