Thursday, June 21, 2012

Lets look at Pengrowth Energy today. It trades on the TSX under the symbol (PGF) and on the big board the NYSE under the symbol (PGH).
For discussion and to determine the entry and exit points. Using the companies P/E and CF/S
historical data to determine the P/E ratio and CF/S ratio so that one can determine what the entry and exit positions should be and I’ll look at the dividend ratio (D/S) for this company as well.
PGF has been a publicly traded company for more 14 years, Pengrowth is not a direct oil and gas company but a company that is a drilling operator (as described on Globe and mail).
So here we go: for the past 3 years PGF has had an average P/E trading range of 37.3 (high) and 21.1 (low). Over a longer term PGF had an lower average P/E ratio of 22.3(high) and 14.1(low) over the past 15 years. PGF has also had some wild swings in the past, for example P/E values in 2011 PGF had a high P/E ratio of 55.8 and a low P/E ratio 5.4 in 2008. With a current P\E of 31.1 it looks like PGF is on the top end of the price range. PGF's average annual Earnings growth of 24.1% over the past 15 years with some bumps along the way. On the short term PGF has had a Earnings growth about a third of what is was in 2008.
 For the purposes of this analysis I am using the average of a 0% increase to determine what PGF should be valued at.
Knowing or at least estimating future earnings you can estimate the share price. In this case PGF should earn about $0.36 in 2012 and using the average P/E the estimated trading range should be $13.29 (high) and $7.53 (low). Earnings in the first quarter was reported to be 0%.

PGF is a dividend payer which it started paying in 2002. Lets hope that PGF will continue to pay its dividend. I don’t see PGF increasing its dividend in 2012, with the total dividend will remain at $ .84 per share which is paid monthly.
The issue with this company is that PGF upped its dividend amount by 10% in 2011 but, it also increased the number of shares, in effect cancelling any dividend increase.
PGF’s dividend yield for the past 11 years ranged from 10.35 (high) to 17.38 (low). Currently PGF is paying a 11.75% based on its current price $7.15. For the shorter period of the past 3 years PGF had a range of 6.54 (high) and 11.94 (low)
Looking at the math for the dividends and using the last 3year average, then working it backwards the dividend would support a share price of $12.85 (high) and 7.04 (low).

Looking at the price per cash flow ratio (P/CF). PGF has increased it’s average CF/S by 67.42% over the past 15 years. PGF’s 15 year average P/CF ratio is 8.1 (high) and 5.3(low).
For the past 3 years PGF has had an average CF/S of 0.69 and the P/CF ratio is 7.6 (high) and 4.45 (low)
This gives PGF a share price based on a cash flow of $11.77 (high) and $6.89 (low). With todays price of $7.15 it appears to be at the lower end of value based on this price. CF/S for 2012 is estimated to be $1.55 per share which is an increase of 4% over 2011.
To sum it up: current price $7.15
P/E bottom of the price range $7.53
D/S is near the bottom $7.04
CF/S is near its lowest estimated price range $6.89
Looking at the option side for the trade. On both exchanges PGF and PGH are very very thinly traded. Which makes this company a poor company to trade options on at this time.
PGF options trades on the www.x-m.ca and PGH on the www.CBOE.com.