Thursday, November 8, 2012

Penn West shake-up

I own Penn West (PWT). I'm not happy owning PWT and haven't been for years. PWT has a poor aura. By that I mean one reads a lot of bad mouthing of the stock and the company behind that stock. The big dividend has not been seen in a positive light by many Penn West critics. Simply put, a lot of folk have not been enamored with the Canadian oil and gas producer for years, and one big complaint has been management.

I got into PWT through the backdoor. I owned a small junior oil concern, Canetic Trust. I had split my junior oil investment funds and put a little in Crescent Point, some in Inter Pipeline, a little in Petro Canada and some in Canetic. Petro Canada was swallowed by Suncor and Canetic was folded into Penn West. I still own a few hundred shares of Crescent Point and with Inter Pipeline above $20 I sold my shares in the Canadian company and moved on.

When PWT got down to about $13, I bought more. I averaged down. Over time I got my average book price down by half. Not a good sign. It tells you how much the weakening stock has fallen.

Well, the falling knife is still falling. My losses are still climbing. There has been a big shake-up in the executive offices of Penn West and this has unsettled the market's feeling about PWT at a time when the stock market overall is unsettled.

How low can PWT go? I don't know. I wouldn't even hazard a guess. Will I buy more if it drops again? Maybe. Only time will tell.

Personally, I'm glad to see that management changes are occurring. PWT management has worried many critics for years. I'm hopeful. Maybe the company will find the brake pedal and stop the steady decline in the value of their stock.

The first thing that they need to do is cut the dividend. At least, that is my gut feeling. Let me make it clear that I have no proof this will happen but I will not be surprised if it does. And the price of the stock may well fall on such an announcement.

Still, I've got time on my side. I can wait for PWT to get its house in order or possibly to be the target in a take-over. Either way, the stock should get a pop. Will it be enough to allow me to get out with my financial skin intact? Maybe.

A few facts:

  • Penn West's last trade yesterday was at $10.65.
  • Penn West lost 54-cents or 4.83 percent yesterday.
  • The dividend yield is now north of 10 percent at 10.1 percent.

When I do a little research into what others are saying, I find that Patrick Bryden CFA (Scotia Capital Inc. - Canada) says among other things:

". . . asset spread remains impressive and latent value is deep, however market awaiting delivery. While the departure is a significant change in leadership for the company, with no announced replacements, we expect the stock to continue to be volatile. We maintain our positive view of the company's resource exposure company and also hold that execution remains paramount in converting latent potential into share price appreciation for stockholders.

We maintain our 2-SP rating and our one-year target price of $18.00.

I'm buckling my investment seat belt and preparing for a wild ride.

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