Brokers Bullish on Gas Weighted Companies

Posted by Jonathan Moore

May 23, 2013 5:30:04 AM

Brokers are gaining more confidence in gas producing companies in Canada according to a quick CanOils analysis of over 120,000 broker recommendations for 129 TSX and TSX-V companies since Q2 2010.

By assigning a rating to Broker recommendations and looking at average value of these, we can see that since September 2012, there has been a slight move from Overweight towards Buy for gas weighted companies; 1.56 to 1.47.

Interestingly though, the average recommendation for an Oil weighted company has been steadily moving in the opposite direction, from Buy in May 2012 towards Overweight in April 2013.

Average recommendations methodology: Buy = 1, Overweight = 1.5, Hold = 2 , Underweight = 2.5, Sell = 3. Weighted average rating for each company calculated, and averaged across peer group for relevant period. Average recommendations methodology: Buy = 1, Overweight = 1.5, Hold = 2 , Underweight = 2.5, Sell = 3. Weighted average rating for each company calculated, and averaged across peer group for relevant period.

 

This trend for gas weighted companies seems to be following the forecast gas price quite closely, where AECO forecasts have been rising steadily for the past year.

Broker consensus estimates are a forecast for the average commodity price the following year. Broker consensus estimates are a forecast for the average commodity price the following year.

 

However, by looking at Buy minus Sell recommendations as a percentage of total recommendations, we can get a stronger indication of this trend.

We can see that from September 2012, Brokers have started to show more faith in gas weighted companies and there was a sharp increase of the net recommendations - the average weighting increased from 0.43 to 0.53 in April 2013. Or in other words there was a 10% increase in the number of net Buy recommendations.

On the flip side, since May last year there has been a steady decline in the differential of oil weighted companies, with this decreasing from 0.74 to 0.64, or 10% less net Buy recommendations being issued for oil weighted companies now than a year ago. This is despite the forecast WTI price remaining flat for the past 10 months.

Net recommendations methodology: Buy = 1, Overweight = 0.5, Hold = 0, Underweight = -0.5, Sell = -1. Sum estimates values for each company and divide by total estimates e.g. net positive recommendations as a percentage of total recommendations for a company. 1 indicates all Brokers have issued a Buy recommendation. Averaged across peer group for the relevant period. Net recommendations methodology: Buy = 1, Overweight = 0.5, Hold = 0, Underweight = -0.5, Sell = -1. Sum estimates values for each company and divide by total estimates e.g. net positive recommendations as a percentage of total recommendations for a company. 1 indicates all Brokers have issued a Buy recommendation. Averaged across peer group for the relevant period.

 

CanOils Forecast data contains Broker consensus, median, high and low estimates for over 300 TSX and TSX-V listed E&P and Service companies. Data is supplied by FactSet Research Systems Inc. and is updated weekly.

Topics: Canada, Companies

    

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