Birchcliff Energy Ltd. a pass

Sep 27th, 2013 – Comment

The shares have been building a base at $7.00 but I am not sure that its the bottom.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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BIR LOGO

 

Hi Lou,

I am looking to add some shares of Birchcliff to my portfolio near $7.00.

While their debt/cash flow is a little higher than I would like, they have done a very good job of growing production and reserves.

Also:

If/when LNG terminals are built (west coast or otherwise) they should be in good position.

They have strong backing of a billionaire. Presumably he is in to make $

I would like your thoughts

Thank you

Tom

 

Hey Tom,

Thanks for the assignment. Birchcliff Energy Ltd.(BIR TSX) has been suffering with all natural gas producers. The price of the commodity has been under pressure as a new sources of supply in North America have left producers scrambling to find new markets in Asia. The promise of liquified natural gas exports is what I would call an if come. If it comes great but its not yet a reality. You mentioned a billionaire stepping up to invest in the company. My research indicates it was Seymour Schulich who on March 30, 2012 injected $38 million in an effort to maintain his ownership stake in the enterprise. Other investors saw the issuing of new shares as a dilution of their equity position and  responded by selling.

A study of the charts will inform my thoughts on the opportunities and risks related to BIR.

 

 

 

BIR

The three-year chart illustrates the gap down after the announcement that Schulich was stepping up in March of last year. The shares eventually hit a low of $5.60 on June 29, 2012 where it caught a bounce and started a new advance. The move higher came to an end when the shares met resistance near $9.00 and pulled back to $7.00. Worth noting is the double top that formed in late May and early July of 2013 and the death cross that surfaced in late August.

 

 

 

 

 

 

 

BIR2

The six-month chart provides a close-up of the double top which signalled the end of the advance. In addition the MACD and the RSI indicated that sellers were taking control of market in mid July. Currently the momentum indicators are turning lower which suggests that investors should expect more selling pressure.

Unfortunately these charts are not providing me with enough evidence to support a buy. The shares have been building a base at $7.00 but I am not sure that its the bottom. Personally I would give this one a pass.

 

Make it a profitable day and happy capitalism!

 

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