Precision Drilling Trust $16 - Toronto symbol PD.UN

PRECISION DRILLING TRUST $16 (Toronto symbol PD.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 125.8 million; Market cap: $2.0 billion; SI Rating: Extra risk) is Canada’s largest provider of drilling and related services to the oil and gas industry. Precision’s drilling fleet consists of 259 land drilling rigs. In the third quarter of 2007, Precision’s revenue fell 34.8%, to $227.9 million from $349.6 million a year earlier. Earnings per unit fell 48.1%, to $0.55 from $1.06. Cash flow per unit fell 46.5%, to $0.68 from $1.27. Lower natural gas prices have cut demand for drilling services in Precision’s core markets in Western Canada. Rising natural gas inventories have also hurt rig demand. Precision cut its monthly distribution in June 2007 by 31.6%, from $0.19 a unit to $0.13. It now yields 9.8%. The cut will let Precision conserve its cash until drilling activity recovers, while continuing to expand in the U.S. The units now trade at 6.0 times Precision’s 2007 profit forecast of $2.65 a unit, and at 4.5 times cash flow. Precision Drilling is a buy.

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