Eagle Energy Trust offers a healthy yield with a side of volatility

Jan 31st, 2014 – Comment

  What do you think of Eagle Energy Trust and the management behind it? I have 700 units with an average price of  nine dollars . Ken         Hey Ken, Thanks for the assignment. This will be the first time that I explore the details that surround Eagle Energy Trust (EGL.UN TSX). […]


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What do you think of Eagle Energy Trust and the management behind it? I have 700 units with an average
price of  nine dollars .

Ken

 

 

 

 

Hey Ken,

Thanks for the assignment. This will be the first time that I explore the details that surround Eagle Energy Trust (EGL.UN TSX). One hundred percent of the trust’s production, of which 82% is light oil, comes from properties in Texas. The company is exploiting provisions of the Canadian Tax Code to operate much in the fashion of those good old income trusts that were destroyed by Flaherty et al in the Halloween Massacre of 2006. With the structure of the trust ELG.UN is able to deliver higher payouts to unit holders. Currently the yield on distribution is 13.16%. By the law of 72 you could see a doubling of your income in 5.3 years. In todays low interest rate environment that return stands out like the CN Tower.

The market capitalization for the trust is $256.55 million and the average daily volume over the last three months is 69,689 shares. A survey of the charts will highlight the trend, support, and resistance associated with these units. I will forgo any comments on the management of the trust.

 

 

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The three-year chart indicates that EGL.UN is a bit of a choppy trader with sharp movements both up and down. The advance that started in the spring of 2013 when the units were trading near $5.75 came to an abrupt end by late October when the price approached $8.75.

The MACD and the RSI both signalled the trend reversal in April of 2013. In addition the units held support along the 50-day moving average through the uptrend. The momentum indicators generated a sell signal in late October and then a buy in December and finally a sell in January of 2014.

Clearly a trading for profit strategy has been the tale of the tape since October of 2013.

 

 

 

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The six-month chart provides a close-up of the sell signals generated by the MACD and the RSI in late October and the buy in December. Currently the units have pulled back from the $8.40 level and look to be headed to a retest of support at $7.75.

What you have to decide with your holdings of EGL.UN is why exactly you were a buyer. If it was to enjoy the generous dividend I would say you are on task. If it was for capital appreciation you may have been chasing the wrong opportunity. From the research conducted on your behalf it seems evident that you have invested in a small cap player in the Texas oil fields which only drills a limited inventory of targets every year. If one of the wells comes a cropper then you can expect volatility in the price of the units.

 

 

Make it a profitable day and happy capitalism!

 

 

 

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