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Workers tap deep into North Dakota's Bakken formation, on a Precision Drilling rig. (Nathan VanderKlippe/Nathan VanderKlippe for The Globe and Mail)
Workers tap deep into North Dakota's Bakken formation, on a Precision Drilling rig. (Nathan VanderKlippe/Nathan VanderKlippe for The Globe and Mail)

Dividend hike not out of question at Trinidad Drilling: analyst Add to ...

Fewer dividend increases from Canadian oil and gas service companies are expected, compared to the same time last year, but Trinidad Drilling Ltd. could be one to buck that trend, a Desjardins Securities analyst said on Wednesday.

“One year ago, the services group made headlines for installing large dividends and new-build [rig order] announcements,” Jamie Murray said in a report. “Today, drilling activity has softened and expectations of dividend increases and large new-build awards are lower.”

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But Trinidad Drilling is one company that could announce a dividend hike as well as new drilling-rig contracts, he wrote. “On the capital expenditure side, Precision Drilling has been gaining momentum internationally and could sign additional rig contracts in the Middle East region.”

Precision Drilling Corp. kicks off fourth-quarter reporting season for the sector on Thursday before the market opens, and that usually sets the tone for the group, Mr. Murray noted.

Still, he expects “muted results” in earnings due to a protracted spring breakup in Canada when road bans from melting snow conditions limit drilling activity. PHX Energy Services Corp. has the greatest chance to “post a significant beat if the momentum from its strong third quarter carries over into the fourth quarter,” he wrote.

PHX is a “potential standout based on recovering U.S. operations and a strong international platform, as well as Trinidad, given its history of solid operating performance and recent earnings beats,” Mr. Murray added.

The Canadian market continues to be hampered by a lower oil price fetched by Alberta producers, compared to West Texas Intermediate Crude, and continuation of depressed natural gas prices, he said. “We do not expect any significant activity increases in the near term while the headwinds remain on the table.”

Upside: As earnings plays, he prefers Trinidad Drilling with a target of $9.75 a share, and PHX Energy with a target of $11.25.

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Absolute Software Corp.

The presence of activist investor Crescendo Partners on the board of the security software company will provide “more capital allocation discipline,” said TD Securities analyst Scott Penner. “We see the earnings power of Absolute as significant as a stand-alone company, and more so as a potential target for a strategic acquirer.”

Upside: The analyst, who has a “buy” rating, raised his target by $2 a share to $7.50.

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Tourmaline Oil Corp.

RBC Dominion Securities analyst Michael Harvey raised his target on the oil and gas company after it disclosed that 2012 was another strong year for reserve growth. “The company continues to be one of the lowest-cost producers in the group,” he said.

Upside: Mr. Harvey, who maintains his “outperform” rating, increased his target by $3 a share to $40.

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Orbit Garant Drilling Inc.

The contract mineral drilling firm is experiencing pricing pressures and “we continue to believe that operating margins will remain under pressure in the next few quarters,” said Beacon Securities analyst Michael Mills. “The lack of junior financing is resulting in surplus rig capacity.”

Downside: He downgraded Orbit to “hold,” and cut its target by 75 cents a share to $2.

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Bankrate Inc.

Canaccord Genunity analyst Michael Graham cut his target on the personal finance Web site after it reported a “fairly weak fourth quarter,” and guided for flat revenue and margin pressure for 2013.

Downside: The analyst, who maintains a “hold” rating, reduced his target by $3 (U.S.) a share to $11.

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