Precision Drilling Trust Thursday, June 14, 2007
Posted by ei-forum in US Traded Stocks.trackback
Precision Drilling Trust (PDS) through its subsidiaries, provides contract drilling, service rig, and ancillary services to oil and natural gas exploration and production companies in the United States and Canada.
The share price is down over 45% from a year ago, pushed down by a taxation change implemented by the Canadian government on trusts, the current economic climate and the fact that the second quarter is seasonally the weakest for all drillers in Western Canada.
The company has demonstrated that it has a strong business model and management has repeatedly shown that they are capable of creating value and returning it to shareholders. Most recent dividend paid was of 1.95 USD which amounts to an annual yield of 7.6% and consensus is that it is very likely to grow to 9% over the next 3 to 5 years.
They have recently been trading just under 25.50 USD. Considering the above comments, the divided yield, future outlook and the fact that we have seen “fair value” estimates at over 60 USD – we feel that PDS could be an interesting company to invest in at this moment in time.
Please read our disclaimer.
Stumble It!
Explore Investors Blog Network
Current yield is closer to 5% and, while comments about the structure and business model are accurate, the role of the Canadian government in regards trusts like Precision is still a bit of a wild card and is putting doubt in the minds of investors. Precision is moving into the US which should help diversify its base and a buyout in the mid 30′s has been speculated for the past few months. Fair value is seldom reached in such buyouts as that value is often in the eyes of the holders and not the buyers.
Thanks Tom,
Indeed, if the Canadian government proposal on the tax laws governing trusts – which could decrease the after tax cash flow available for distribution as well as the tax rates on PDS unit holders – goes through, it could result in PDS reverting to a corporation, which may involve significant incremental costs.
The fair value IS an economic/statistical/rational figure which is seldom reached in buyout but we talked about it just to show – in an exaggerated way – that there is a lot of value in this company. Even if the speculation for the buyout is in the mid 30s, this still represent a 40% premium over recent prices.
Again, thank you for your post.
Long PDS.