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Top Picks 2016: Cathedral Energy

01/12/2016 7:00 am EST


Benj Gallander

President, Contra the Heard

For his top speculative Top Pick for the coming year, value investor Benj Gallander, editor of Contra the Heard, turns to a Toronto-listed energy firm that he believes will be a survivor in a troubled sector.

There is no religion these days at Cathedral Energy (TSX: CET). The stock has taken an absolute pounding along with most in the drilling space given the plummet of oil and gas prices. Plus, the handsome dividend was scuttled. All very ugly indeed.

Revenues plunged 59% in the most recent quarter compared to one year ago, as $77 million turned into $31 million. Customers are moving to the sidelines, either cancelling or postponing drilling in many cases.

Thus, even with excellent technology and pretty darn good service, business is lacking. That led to negotiations with creditors, which appear to have been concluded successfully. We like to believe that a further conversation will not be necessary in the near future.

Worth noting is that the capital budget for 2015 has not been changed. The tally is $7.2 million. Given the current set of circumstances, a cutback here could easily have been surmised, but management has decided to stay the course.

Our belief in this company is that it will be one of the survivors of the wreckage. However, given the duration of the downturn and the possibility that it will not reverse in the near future, Cathedral might not make it.

That being said, this corporation has the possibility of a 10-bagger plus, if it can endure the current carnage. That possibility makes this a reasonable speculative investment for those strong enough to take the plunge.

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