ERF: Enerplus Resources Fund

Date: 7 March 2009
Price: $13.34
P/E: 3.40
FP/E: 7.94
P/B: 0.68
Yield: 12.59%
Debt/Eq: 0.12

Introduction
Obviously the yield is incredible, and the current P/E too - however it doesn't look quite so good for the coming year.

Company Description
Enerplus are in the oil and gas drilling and exploration sector, which pretty much tells you what you need to know. They're a large company - $1.4B in sales, $2.2B market cap - based in Calgary, AB.

Note that this is some kind of unit trust, rather than a corporation, which apparently has some kind of tax benefit in Canada, which is coming to an end in 2011. It's likely to change into a corporation before then. Note that it is set up with the express intent of paying a significant divident to unit holders/shareholders, which is good.

Past 10 years
Last year's EPS of $5 was unusually high. Typically it's in the $2-$4 range. Average of ~$2.8 from 2003-07, which gives an average P/E of 5 at today's price. The company has been consistently profitable since it first issued shares around 2000. The number of shares has increased every year, by approx 10% each of the last 4 years. So growth in profits has been split between more shares each year.

Looking at the assets, the vast majority of assets are PP&E (Property, plant and equipment). The Shareholder's equity has increased dramatically over the years, but then (of course) so has the number of shares. More usefully, between 2003 and 2007 the equity/share has increased about 30%, which is obviously good.

The company is generating free cash flow (cash - capital expenditure) pretty much every year, and the exception was not huge. This runs at approximately 50% of profit each year. So again, all looks fine.

The dividend has increased every year (pretty significantly), leading to its current high yield rate. However the annual report indicates that it will be cut this year.

It seems this year's high earnings are based on a one off huge quarter in 09/08, when ERF earned $2.73/share rather than the more usual $0.68. Analysts estimates are for a slightly weak (20% down) Q408, and then a very week Q109.

Pros
A profitable company, with a nice dividend policy (even if the current dividend won't be maintained). Cheap based on historic income, but not on future income - which is largely pegged to the commodity prices of oil and natural gas.

Risks
My main concerns are:
- it's a unit trust, which I don't really understand
- by buying we'd basically be betting that gas prices will one day rise again (which seems likely, but when?)
- it's huge and complicated. I don't have a hope of understanding the accounts fully.

Conclusion
There are a lot of potential oil/gas stocks on my list to investigate. I probably only want to buy stock in one or two of them. I'm potentially interested in ERF - but probably not with a huge sum of money - and it depends on whether the other opportunities look better.