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Liquefied natural gas pipelines in Mt. Hayes, B.C., on April 2, 2013. (Chad Hipolito for The Globe and Mail)
Liquefied natural gas pipelines in Mt. Hayes, B.C., on April 2, 2013. (Chad Hipolito for The Globe and Mail)

Schiza’s Mailbag

Charts signal good days ahead for Cequence Energy Add to ...

Hi Lou,

Analysis of Cequence Energy please. I picked this up at $1.76 and have a stop loss at $1.64. Does the cash from CPP reduce the risk on this stock?

Thank You!

Grant

Hey Grant,

Thanks for the assignment.

This will be my first examination of the particulars associated with Cequence Energy Limited. Management has stated that the company is positioned to become a significant natural gas producer in Canada. The five year plan is to grow production to 40,000 barrels of oil equivalent per day (BOEPD) up from current output of 12,000 BOEPD. You asked about the Canada Pension Plan Investment Boards debt placement and if it reduced the risk associated with the stock.

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I suppose to some degree given that the money raised from CPPIB was used to pay down bank debt at a higher cost. However keep in mind that the CPPIB bought $60-million of five year term debt with a 9 per cent coupon and 3 million warrants with a strike price of $2.03. Clearly they didn’t do it for free or at a discount.

Your investment at $1.76 is currently in profit and I would imagine you want to know if there is more to come. A study of the charts will help identify how best to proceed.

The three-year chart indicates that the shares were trading sideways in a range with support at $1.50 and resistance near $2.00. The breakout above $2.00 in February was driven by the rising price of natural gas as the polar vortex that gripped much of North America pushed consumption beyond expectations. The MACD and the RSI both generated a buy signal as we came into February.

The six-month chart provides a close-up of the buy signal generated by the MACD and the RSI. The shares have also found support along the 200-day moving average. Finally a pennant has formed which indicates that we can expect the advance to continue. The next earnings announcement is scheduled for release in early March which could be the catalyst for further gains.

Be advised that trees don’t grow to the sky and stocks never just keep climbing.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.

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