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On today’s TSX Breakouts report, there are 24 stocks on the positive breakouts list (stocks with positive price momentum), and 30 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appears on the positive breakouts list. The stock offers investors a combination of growth and income. Earlier this month, the company announced an accretive acquisition. In addition, the stock offers investors an attractive yield of nearly 4 per cent and the board may approve a proposed 25 per cent dividend hike.

With 11 buy recommendations and an expected price return of 37 per cent (over 40 per cent if you include the dividend yield), featured today is Surge Energy Inc. (SGY-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Calgary-based Surge Energy is an oil-weighted producer with operations in Alberta and Saskatchewan.

On Sept. 5, the company announced its plan to purchase Mount Bastion Oil and Gas Corp. [MBOG] in an accretive deal valued at $320-million. The proposed acquisition will increase the company’s oil and liquids weighting to 85 per cent from 81 per cent. In terms of economics, management stated in the news release, “The transaction is 11 per cent accretive to Surge’s forecast 2019 adjusted funds flow per share and adds over 600 million barrels of net internally estimated light original oil in place, concentrated reserves, production, land, and operations. The addition of the MBOG assets increases Surge’s operating netback per boe [barrel of oil equivalent] by 12 per cent and is forecast to add over $85-million of net operating income in 2019.”

Looking forward, management provided a positive outlook stating, “Upon the completion of the transaction, Surge's projected 2018 production exit rate is now expected to increase to more than 22,500 boepd [barrels of oil equivalent per day]. Post-closing, Surge's corporate decline is expected to drop below 24 per cent. The company will have an estimated $31-million of free adjusted funds flow in 2019, over and above its annual exploration and development capital expenditure program and the upwardly revised dividend.” Management added, “In 2019, Surge will continue to focus growth capital towards high quality, large OOIP [original oil in place], light and medium gravity crude oil reservoirs. Management's primary goals for Surge include achieving five to six per cent organic annual per share growth in reserves, production, and adjusted funds flow, maintaining and growing a sustainable dividend, continued debt reduction from the company's free adjusted funds flow, together with the pursuit of high quality, accretive acquisitions.”

After the market closed on Aug. 8, the company reported solid second-quarter financial results, which were largely in-line with the Street’s expectations. Production was 17,072 barrels of oil equivalent per day (boe/d), ahead of the consensus estimate of 16,494 boe/d. The company reported adjusted cash flow per share of 17 cents, in-line with the Street’s expectations. The share price was relatively unchanged the following day, rising by one cent on high volume.

Returning capital to its shareholders

The company currently pays its shareholders a monthly dividend of 0.833 cents per share, or 10 cents per share on a yearly basis. This equates to an annualized dividend yield of 3.9 per cent. However, the dividend is anticipated to increase shortly should the board approve the proposed dividend hike.

In a Sept. 5 news release, management indicated that subject to board approval, the monthly dividend will increase 25 per cent to 1.04 cents per share, or 12.5 cents per share annually. This is the second dividend hike announced year-to-date.In June, the quarterly dividend was increased to its current level of 0.8333 cents per share from 0.7917 cents per share.

Management targets a payout ratio of between 20 per cent and 30 per cent.

During the first half of 2018, the company repurchased 2,725,631 shares at a weighted average price per share of $2.

Analysts’ recommendations

This small-cap stock with a market capitalization of $590-million is well covered by the Street. There are currently 14 analysts with recommendations on the stock, of which 11 analysts have buy recommendations and three analysts have hold recommendations. Of note, there are currently three analysts who are restricted on the stock.

The 14 firms with recommendations on the stock are as follows in alphabetical order: Acumen Capital, Canaccord Genuity, Cormark Securities, Eight Capital, GMP Securities, Industrial Alliance Securities, Laurentian Bank Securities, National Bank Financial, Paradigm Capital, Peters & Co., Raymond James, RBC Capital Markets, Scotia Capital, and TD Securities.

Revised recommendations

Earlier this month, seven analysts revised their expectations, of which six analysts increased their target prices and one analyst lowered his target price.

Cameron Bean from Scotia Capital lifted his target price to $3.20 from $3. Jeremy McCrea from Raymond James increased his target price to $3.50 from $3.25. Adam Gill from Eight Capital bumped his target price up to $3.75 from $3.40. Juan Jarrah from TD Securities took his target price up to $3.50 from $3.25. Ken Lin from Paradigm Capital raised his target price to $3.25 from $3. Todd Kepler from Laurentian Bank Securities bumped his target price up by 25 cents to $3.75. The sole analyst to revise his target price lower was Shailender Randhawa, the analyst from RBC Capital Markets, who trimmed his target price to $3 from $3.25.

Financial forecasts

The consensus cash flow per share estimates are 62 cents for 2018, rising to 75 cents in 2019.

Financial forecasts have been rising. For instance, three months ago, the consensus cash flow per share estimates were 60 cents for 2018 and 69 cents for 2019.

Valuation

The stock can be valued on an enterprise value-to-debt adjusted cash flow basis.

The consensus one-year target price is $3.51, implying the share price may appreciate 37 per cent over the next 12 months. Individual target prices are as follows in numerical order: $2.75 (the low on the Street is from the analyst at Peters & Co.), $3, $3.20, two at $3.25, two at $3.50, $3.65, four at $3.75, two at $4 (the high on the Street is from the analyst from Cormark Securities and Industrial Alliance Securities).

Insider transaction activity

In a relatively small transaction, on Sept. 11, Keith Macdonald, who sits on the board of directors, bought 10,000 shares at a price per share of $2.37, increasing his account balance to 57,000 shares.

Chart watch

Year-to-date, the share price has surged over 22 per cent, outperforming the S&P/TSX energy sector, which is down 3.7 per cent. If this small-cap stock was included in the TSX Energy sector, it would be one of the top performing stocks in the sector.

In terms of key technical resistance and support levels, the stock has initial overhead resistance around $2.70, and after that there is major resistance around $3. On a pullback, there is strong technical support around $2.20, at its 200-day moving average.

This small-cap stock has reasonable liquidity. The three-month historical daily average trading volume is approximately 1.1 million shares.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indices that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Positive Breakouts Sept. 21 close
AOI-T Africa Oil Corp $1.51
AC-T Air Canada $28.33
AD-T Alaris Royalty Corp $20.68
ALS-T Altius Minerals Corp $13.11
AI-T Atrium Mortgage Investment Corp. $13.95
BMO-T Bank of Montreal $108.26
CPX-T Capital Power Corp $29.45
CGX-T Cineplex Inc $34.01
DRG.UN-T Dream Global REIT $15.37
D.UN-T Dream Office REIT $25.67
EBM-T Eastwood Bio-Medical Canada Inc. $8.48
ERO-T Ero Copper Corp. $11.65
GEI-T Gibson Energy Inc $20.75
GSV-T Gold Standard Ventures Corp. $2.34
HNL-T Horizon North Logistics Inc $2.85
IIP.UN-T InterRent REIT $11.87
JWEL-T Jamieson Wellness Inc. $26.80
MAL-T Magellan Aerospace Corp $17.92
MRC-T Morguard Corp. $175.51
NEO-T Neo Performance Materials Inc. $18.34
PKI-T Parkland Fuel Corp $43.03
RPI.UN-T Richards Packaging Income Fund $40.50
SGY-T Surge Energy Inc $2.56
ZYME-T Zymeworks Inc. $21.32
Negative Breakouts
ADN-T Acadian Timber Corp $18.68
BOS-T AirBoss of America Corp $11.55
ASR-T Alacer Gold Corp $2.05
ADW.A-T Andrew Peller Ltd $16.46
BTE-T Baytex Energy Corp $3.46
BLX-T Boralex Inc $18.35
CGY-T Calian Group Ltd. $30.81
CTC.A-T Canadian Tire Corp Ltd $155.80
CS-T Capstone Mining Corp $0.75
CLS-T Celestica Inc $14.10
CNL-T Continental Gold Inc $2.78
BCB-T Cott Corp $19.60
DEE-T Delphi Energy Corp $0.68
EMP.A-T Empire Co Ltd $22.69
FFH-T Fairfax Financial Holdings Ltd $682.64
GH-T Gamehost Inc $11.39
GS-T Gluskin Sheff + Associates Inc $14.76
XAU-T GoldMoney Inc. $2.17
IBG-T IBI Group Inc. $4.47
OSB-T Norbord Inc $45.32
PHO-T Photon Control Inc. $1.80
PLI-T ProMetic Life Sciences Inc $0.50
SVM-T Silvercorp Metals Inc $3.23
ZZZ-T Sleep Country Canada $29.97
STEP-T STEP Energy Services Ltd. $5.52
RNW-T TransAlta Renewables Inc $11.80
TRP-T TransCanada Corp $53.02
TCW-T Trican Well Service Ltd $2.28
TOS-T TSO3 Inc $0.56
VLN-T Velan Inc $11.71

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 11:56am EDT.

SymbolName% changeLast
SGY-T
Surge Energy Inc
+1.44%7.73

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