Thursday, June 14, 2012

Seems Cheap: Petroquest Energy Preferred Stock ($PQ, $PTEQP)

I did a post a while back about another preferred stock, the PetroQuest Energy Inc., 6.875% Series B Cumulative Convertible Perpetual Preferred Stock. At that point it was trading at $34; it's now down to $30.5 (60 percent of par). They are now yielding 11.3%. Conversion price is $14.52, making parity $8.71 vs the current common share price of $4.82.

PQ has operations in Oklahoma, Texas, the Gulf Coast Basin, Arkansas and Wyoming and MRQ production was roughly 58% oil and NGLs by revenue. There's a May presentation [PDF] you can read. Market cap is $308 million. There's $150 million in bonds that trade at a premium to yield 8.9%. The MRQ EBITDA was roughly $20 million, or $80 million annualized, which gives EV/EBITDA of 7x and Debt+pref/EBITDA of only 3x. Management owns 12% which is pretty good for a small E&P, and institutions own an additional 77%.

One of the best, most epistemologically rigorous types of investing is low loan-to-value lending. If you can avoid downside risk, by making a loan against assets that are worth multiples of the loan amount, then you have positive expected value and a outcome distribution that avoids capital losses.

A subset of this type of opportunity is low LTV loans where you have a conversion option. Here, you have the same probability distribution that lacks sharply negative outcomes. However, the conversion option skews the distribution sharply more favorably because there's the chance that good results/hyperinflation/etc will move the option into the money.


Integrated Solutions said...
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Integrated Solutions said...
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misha said...

Someone just dumped 120K shares of this at $29 and change. A drop of 15% in a day.

CP said...

That's weird. Very illiquid. You'd be a moron to try to sell that much all at once.

The yield on the bonds keeps falling - now under 7%.

Stock is at a new 1y low though.