In an Oct. 23, 2018 research note, Mackie Research Capital Corp. analyst Bill Newman indicated that Prairie Provident Resources Inc. (PPR:TSX), itself mid-acquisition of Marquee Energy Ltd., is a potential takeout target "given its current valuation and significant asset base that is material to a potential acquirer." It is one of the few companies with significant production, cash flow and reserves and which is highly undervalued, Newman notes. As such, it offers investors "multibagger potential."
At its current share price of CA$0.35, Prairie Provident is trading at a fraction of what its peers are trading at. That is 13.2% of Mackie's core net asset value (NAV) estimate of CA$2.65 per fully diluted share and 12.6% of its risked NAV of CA$2.78 per fully diluted share. Also compared to its peers, the company is the most undervalued in terms of enterprise value/reserves value. Further, regarding 2019E enterprise value/production basis, Prairie Provident is trading at about CA$19,960 barrel of oil equivalent (boe) compared to the median of about CA$24,138 boe.
Surge Energy Inc.'s recent acquisition of Mount Bastion Oil & Gas for CA$320 million implies a potential value of about CA$1.25 per share for Prairie Provident, not accounting for Prairie's larger asset base. The transaction "underlines how undervalued Prairie Provident is at the current market price," wrote Newman.
Following Prairie Provident's acquisition of Marquee, slated to close in November 2018, Prairie Provident will be a much larger, undervalued entity, with greater assets and oil production, "which puts a bulls-eye on it," Newman highlighted.
The combined company will encompass daily production of 7,700 boe, Proven and Probable reserves of 42.2 million boe, about 715,000 undeveloped acres and three core areas with more than 114 proven drilling locations. Newman noted that "the acquisition is accretive on reserves, NAV and cash flow bases, and Prairie Provident is even more attractive on all valuation metrics."
The analyst reiterated Mackie's Buy recommendation and CA$2 per share price target on Prairie Provident.[NLINSERT]
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Disclosures from Mackie Research, Prairie Provident Resources Inc., Update, Oct. 23, 2018
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Relevant disclosures required under Rule 3400 applicable to companies under coverage discussed in this research report are available on our web site at www.mackieresearch.com.
Each analyst of Mackie Research Capital Corporation whose name appears in this report hereby certifies that (i) the recommendations and opinions expressed in this research report accurately reflect the analyst's personal views and (ii) no part of the research analyst's compensation was or will be directly or indirectly related to the specific conclusions or recommendations expressed in this research report.
Mackie Research Capital Corporation, its directors, officers and other employees may, from time to time, have positions in the securities mentioned herein.
Bill Newman: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. Within the last two years, Mackie Research Capital has managed or comanaged an offering of securities for, and received compensation for investment banking and related services from Prairie Provident Resources Inc. Bill Newman has research coverage on Prairie Provident Resources Inc.