It’s been a tough three years for Canada’s energy stocks. Although oil has rebounded from lows set just over a year ago, nobody is terribly optimistic. Most pundits agree: oil will stay low for a while.
Nobody is certain that today is a bottom, but bottoms usually form when the market hates the sector.
Akita Drilling Ltd. (TSX:AKT.A) is an interesting way to play a recovery in the space. Akita provides drilling rigs and crews to oil companies looking to extract crude. It benefits the producer because Akita represents a known fixed cost. When oil was doing well, there was plenty of profit margin to both pay Akita and still make money.
In 2015, when that profit margin went away, Akita collected millions in early cancellation fees. It stuck that cash in the bank, laid off most of its employees, and hunkered down.
Revenue fell from $165 million in 2014 to just $61 million in 2016. Despite the collapse in its top line, Akita actually posted a small profit of $5.3 million in 2016, or $0.30 per share.
The balance sheet is rock solid. Akita paid off the last of its debt in 2014 and is currently sitting on a healthy cash balance of $14.25 million. It has a book value in excess of $12 per share; shares currently trade hands under $9.
Akita also pays an attractive 3.8% dividend. At this point the payout is easily covered by the cash in the bank, but it could be cut if the energy rout continues for much longer.
