Company: Wild Stream Exploration Inc. (WSX-V)
Sector: Energy, E&P
Market Cap (M$): 611
Website: Wildsr.com
Company Profile:
Wild Stream’s operations are focused primarily in Alberta and Saskatchewan. In January, 2010, Wild Stream acquired 100% Dorado Energy Inc. In June, 2011, Wild Stream acquired producing oil and gas assets in SW Saskatchewan in the Shaunavon and Dodsland Viking areas of SW Saskatchewan. The Shaunavon Assets are primarily in the Gardenhead, Butte and Dodsland areas of SW Saskatchewan. Wild Stream also has an exploration position in the Swan Hills Reef Complex in Alberta. Wild Stream is an oil-weighted junior E&P, producing ~7,000 boed, weighted 92% to oil and liquids and with a land position of ~360 net sections. Wild Stream has hedged ~2,000 bbls/d for 2012 at $95/bbl WTI. Insider ownership is ~15% basic & ~23% fully diluted, with ~25% institutional ownership.
The management team at Wild Stream has an excellent track-record, and led by Neil Roszell, has flipped 3 previous companies, with compound annual growth rates (CAGR’s) of 33%, 23%, and 123% (recent to oldest). Scott Saxberg, CEO of Crescent Point (the purchaser of Neil’s last junior, Wild River Resources Ltd. in 2009) is also an independent director Wild Stream’s board.
Fundamental Analysis:
Wild Stream’s growth rates have been impressive, with Sales MRQ and TTM vs. the previous year’s growing by 284% & 214%, respectively. EPS growth has been even more impressive at 350% & 1540% for MRQ and TTM, respectively, vs. the previous year.
Surprisingly, for a high growth junior, Wild Stream’s total debt to equity ratio is only 16.72, when the sector average is nearly 21! I was expecting much more leverage on the balance sheet. Wild Stream does have access to a $160 M credit facility, which along with the hedged production, should help protect the company from bumps in 2012.
Current EV is ~$700M, and thus if the exit guidance of 7k boed is reached, the cost per flowing boed would be around $100k. As the recent takeouts in the Shaunovan (where Wild Stream has 235 net sections of land and 70% of current production) by Crescent Point have averaged ~$150k/flowing barrel, one can expect ~50% upside to the stock price based on the Shaunovan assets. Of course, Wild Stream’s success in the Dodsland Viking and Beaverhill Lake areas will also impact a potential take-over price, but it is clear there is upside to Wild Stream’s current valuation.
Technical Analysis:
Technicals show a symmetrical wedge forming which should force a break-out to the upside or downside. The $9 level has provided support and resistance before so it is no surprise that the stock is consolidating around that level. One can either way for the break-out to the upside to buy, or begin accumulating with tight stops around the $8.75 or $8.50 level – of course the risk is always a fake-break down before confirming an uptrend. RSI is around 40 – not necessarily showing an oversold position yet but potentially reaching the 30 levels with a few more down days. Will also have to watch the MACD over coming days for a bearish crossover of the signal line. Volume has also been quite low during the recent consolidation period – I believe that is because the $9 level is relatively comfortable for investors. Note that average volume for the stock is around 200k.
Seasonality:
According to EquityClock, the seasonality trend for Oil E&Ps begins around January 30th and ends around April 13th. Combined with the technical analysis above, this may be a good time to look at accumulating shares.
Analyst Expectations:
Reuters currently shows that the Analyst positions on Wild Stream include 5 Buy and 8 Outperform recommendations (no hold, underperform or sells). I have reviewed research indicating target prices of $14-15 by the end of 2012.
Trading Strategy:
Given the fundamentals of the company, along with the seasonal performance of the Oil E&P sector around this time, I am looking to begin accumulating shares in the coming weeks based on chart performance. I feel Wild Stream has many further growth opportunities through drilling, and represents an excellent take-out target as production continues to grow above 7k boed. Given Crescent Point’s consolidation in the Shaunavon play, along with its recent deals in the Swan Hills Complex with companies such as Coral Hill, Second Wave Petroleum, and Arcan Resources, not to mention Saxburg’s ties to Wild Stream and their previous purchase of a Roszell company, I would not be surprised if they looked at Wild Stream as an acquisition in 2012/13.
Other companies active in the Swan Hills area that may potentially be interested in purchasing Wild Stream’s non-operated Beaverhill Lake acreage include Pengrowth (JV partner) and Penn West. Wild Stream should be releasing the results on two wells in this area (50% WI) in early 2012. Guidance for 2012 should also be released around this time (mid-Jan) and there is the possibility that Wild Stream will move from the Venture to the TSX in the near future.
I had initially looked at this company in mid-2010, when it was trading at $6, and failed to make the buy decision as the stock went to $9 by year end (a price I thought was too rich given the metrics at that time). Given the growth profile and takeover possibilities, I now believe a price in the $8.50-$9 region is a price worth paying in hopes of returning ~50% in the next 12-18 months should the target price of $14-15 be met. If the charts confirm a break-out, I will begin accumulating a solid position while ensuring to limit my downside risk given the greater macro-economic factors affecting WTI and the S&P/TSX at this time (i.e. Europe, Iran & China). Though I’m not certain until I see further technical action, I may look to slowly increase my position, with the intent to trade 30-50% in the next few months based on volatility / seasonal performance, while holding the remaining shares for a long-term takeover. I will post strategy updates as the action unfolds….