PENGROWTH ENERGY CORP. $8.96 (Toronto symbol PGF; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 360.3 million; Market cap: $3.2 billion; Price-to-sales ratio: 2.1; Dividend yield: 9.4%; TSINetwork Rating: Average; www.pengrowth.com) has a long history of using acquisitions to expand, which adds risk. However, these purchases have increased its reserves and cash flow.
Its latest acquisition is NAL Energy Corp. (Toronto symbol NAE). NAL investors will receive 0.86 of a Pengrowth common share for each share they hold. That will give them 26% of the combined company. The deal should close by May 31, 2012.
Adding NAL’s properties in Alberta and B.C. (54% natural gas and 46% oil) will increase Pengrowth’s projected 2012 production by about 16%, to between 86,000 and 89,000 barrels of oil equivalent a day.
Pengrowth’s shares fell on the news, mainly due to the dilution of existing shareholders. However, the combined company will have $4.3 billion in tax pools that it can use to offset income taxes until 2015. That should let Pengrowth keep paying monthly dividends of $0.07 a share, for an annualized yield of 9.4%.
As well, the merger will let Pengrowth sell some less-profitable properties and apply the cash to projects with stronger long-term potential, including its Lindbergh oil sands project.
Pengrowth is a buy.
