Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Undervalued Stocks for the Enterprising Investor – August 2017. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Seven Generations Energy Ltd (TSE:VII) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Seven Generations Energy Ltd. is a Canada-based natural gas developer. The Company focuses on exploration, development and production of oil and natural gas properties in western Canada. The Company focuses on the acquisition, development and value optimization of tight and shale hydrocarbon resource plays. The Company focuses on Montney Kakwa River Project, which is located approximately 100 kilometers south of its operations in Grande Prairie, Alberta. The Kakwa River Project covers an area of approximately 544,000 net acres in the Kakwa area of northwest Alberta. The Company’s natural gas production is processed at its Lator 1 Plant, Lator 2 Plant and Cutbank Plant, as well as at the Kakwa River Gas Plant. The Company’s processing capacity at its Lator 1 Plant and Lator 2 Plant combined is approximately 260 million cubic feet per day (MMcf/d). The Company has an inventory of over 80 wells at various stages of construction and approximately 230 Montney horizontal wells.
[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.
[otw_shortcode_button href=”https://www.moderngraham.com/moderngraham-stocks-screens/” size=”medium” icon_position=”left” shape=”square”]Learn More About Premium Membership[/otw_shortcode_button]
[/level-free]
[not-level-free]
Downloadable PDF version of this valuation:
ModernGraham Valuation of TSE-VII – September 2017
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $6,773,177,276 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.69 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -366.67% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 119.94 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.64 | Pass | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 1.69 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 6.84 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Fail | ||
| 4. Dividend Record | Currently Pays Dividend | Fail | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.16 |
| MG Growth Estimate | 15.00% |
| MG Value | $6.13 |
| Opinion | Overvalued |
| MG Grade | F |
| MG Value based on 3% Growth | $2.31 |
| MG Value based on 0% Growth | $1.35 |
| Market Implied Growth Rate | 55.72% |
| Current Price | $19.11 |
| % of Intrinsic Value | 311.53% |
Seven Generations Energy Ltd does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the  low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability over the last five years, and the lack of dividends.  As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-0.03 in 2013 to an estimated $0.16 for 2017. Â This level of demonstrated earnings growth does not support the market’s implied estimate of 55.72% annual earnings growth over the next 7-10 years. Â As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Seven Generations Energy Ltd revealed the company was trading above its Graham Number of $13.66. Â The company does not pay a dividend. Â Its PEmg (price over earnings per share – ModernGraham) was 119.94, which was above the industry average of 63.11. Â Finally, the company was trading above its Net Current Asset Value (NCAV) of $-5.97.
Seven Generations Energy Ltd scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$5.97 |
| Graham Number | $13.66 |
| PEmg | 119.94 |
| Current Ratio | 1.69 |
| PB Ratio | 1.64 |
| Current Dividend | $0.00 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
[/not-level-free]
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 6/1/2017 |
| Total Current Assets | $733,200,000 |
| Total Current Liabilities | $434,500,000 |
| Long-Term Debt | $2,041,900,000 |
| Total Assets | $7,172,000,000 |
| Intangible Assets | $0 |
| Total Liabilities | $2,914,200,000 |
| Shares Outstanding (Diluted Average) | 365,100,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $0.76 |
| Dec2016 | -$0.09 |
| Dec2015 | -$0.75 |
| Dec2014 | $0.64 |
| Dec2013 | -$0.08 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $0.16 |
| Dec2016 | -$0.11 |
| Dec2015 | -$0.10 |
| Dec2014 | $0.19 |
| Dec2013 | -$0.03 |
Recommended Reading:
Other ModernGraham posts about the company
None. Â This is the first time ModernGraham has covered the company.
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
Leave a Reply