ECA-CAN - Embedded Expectations Analysis - 2018 09 28
Encana Corporation (ECA:CAN) currently trades near historical lows relative toUAFRS-based (Uniform) Assets, with a 0.3x Uniform P/B. At these levels, the market is pricing in muted expectations for the firm, and management has concerns about their cash flows, production levels, and finding investment opportunities
Specifically, management may be exaggerating their ability to mitigate the
parent-child effect through their cube approach, and may lack confidence in their ability to continue delivering some of the strongest wells in the Permian. Furthermore, they may lack confidence in their ability to sustain over 1,100 BOE per day from the Martin cube and their Jo Mills wells, and to drive total production growth while generating free cash flows. Furthermore, they may lack confidence in their ability to leverage market intelligence and risk mitigation to improve their operations, and to meet their increased FY 2018 margin guidance. Finally, they may lack confidence in their ability find accretive investments, and to better balance their capital program with cash flows
Encana is in the business of the exploration for, the development of, and the production and marketing of natural gas, oil and natural gas liquids (NGLs). All of Co.'s reserves and production are located in North America. As at Dec. 31, 2016, total proved developed and undeveloped reserves for natural gas, oil, and NGLs were 2.90 billion cubic ft., 155.6 million barrels (MMbbls), and 150.4 MMbbls, respectively. Co.'s operating and reportable segments are: Canadian Operations, USA Operations, and Market Optimization.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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