Lightstream for Growth & Income

[dan_s]

Lightstream Resources (LTS.TO and LSTMF): I have updated my Net Income & Cash Flow Forecast and posted it under the Watch List Tab.

My Fair Value Estimate is now $14.30Cdn/share. LTS.TO closed on Friday at $8.26Cdn, so I now believe there is more than 50% upside in the share price. Lightstream has thousands of low-risk drilling locations in the Bakken and Cardium AND it is now generating free cash flows from operations. They will have more than enough liquidity to fund a more aggressive growth plan in 2015.

Free cash flow, combined with proceeds from non-core asset sales, will have their balance sheet in decent shape by year-end.

Lightstream pays monthly dividends of $0.08/month for an annual yield of 5.8%.

I am expecting them to report a slight decrease in production from Q1 to Q2 due to weather related delays in the Cardium, then production should ramp up over the next two quarters to an exit rate over 45,000 boepd (~80% crude oil). Most of their oil is hedged with collars this year that have ceilings over $105US/bbl (WTI), so they are getting the majority of the recent spike in oil prices.

[ChuckGeb]

Dividend is .04 per month.

[dan_s]

My bad. I think was looking at the $0.48 per year dividend and the 8 stuck in my mind. This does not impact my valuation.

[ChuckGeb]

Your reco to hang in there has been spot on on this one and I think a distribution increase might not be far off.

[dan_s]

I don't want them to increase the dividends. Just pay down debt and increase proven reserves. Believe me, that will make us a lot more money. If the price of oil holds near current levels the year-end reserve report will make the debt level look a lot better and the share price will be way over $10. Take a look at my forecast model. The Fair Value Estimate is at the bottom.

[jsb1949]

Dan, you've been pretty high on LTS/LSTMF, are you seeing anything in the ops update to explain
the sell off?

[k1f]

Lightstream's just caught in the takedown of commodities as weather and macro policy spook the players. Dan Norcini has been right to call attn to the Goldman Sachs' Commodity Index (down down),

<<http://traderdannorcini.blogspot.com/

and jim jubak was sensing alarm a week ago:

<<http://jubakpicks.com/articles.asp?aid=Jubak_blog-40483

This week's action has been brutal, but mkts are really thin and overreactive, so we'll have to see how much damage has been actually done.

[dan_s]

I just arrived in Dallas for the luncheon here tomorrow.

I feel very confident in my forecast model for Lightstream. Based on their guidance, production will be slightly lower in Q2, but revenues will be fairly close to what they reported in Q1 because of slightly higher realized oil prices. You can find the model under the Watch List tab.

Take a look at my forecast model (which is in Canadian dollars) and you will see:
> production is expected to ramp up into year-end as they catch up on completions
> last year the realized oil price went up sharply because the differentials in North Dakota and Canada shrink in Q3. Lets hope that happens again this year.

If WTI stays in the $100 range, Lightstream will generate over $150 million in free cash flow from operations. Combined with asset sales, the balance sheet will look a lot better at year-end.

IMO their dividend is rock solid.

[mikelp]

Dan: thanks for the update, I've looked over your forecast model and reviewed the latest report from Lightstream, and see nothing to justify this selloff. I have to agree with you and others here, the bleeding in LSTMF is due to overall energy sector weakness with the dip in WTI prices, and other macro economic concerns with the latest bluster from Fed Chairwoman, CNBC talking heads, and retail weak hands. I've been adding more LSTMF to my HY Income portfolio on this selloff, the yield ~ 6.75% with today's closing price. I can't pick the exact bottom on any stock, but a high yielding monthly divi payer in the energy sector, like Lightstream, is the type of security that I'm always looking for to add on weakness. I guess that's what you describe as hang tough.

[dan_s]

If all you care about is dividend yield, then the pfd stocks in our High Yield Income Portfolio are better choices, but Lightstream has a lot more upside potential.