How long have you held Drillsearch (DLS)?
We have held Drillsearch (ASX Code DLS) since May 2013.
What do you like about it?
Drillsearch is a focused Cooper Basin oil play with strong oil production, which has continued to surprise on the upside, potential wet gas production, an active expansion program and long-term exposure to unconventional gas. The company has substantially increased its reserves, is well run, has delivered on its stated goals and scores well across our earnings and value factors.
How is it better than its competitors?
Drillsearch is focused on one region, namely, the Cooper Basin, with a three pronged business strategy centred on oil, wet gas and unconventional gas. Drillsearch scores very well across our earnings, value and quality factors within our model, and screens exceptionally well relative to the stocks within the energy sector.
What do you like about its management?
Management has a proven track record of delivering solid growth and remains focused on their long-term strategy. Management is proactive with assets and continuously maintains focus on reserves, production and cash flow.
At what point would you sell it?
We would consider selling it on relative valuation grounds when other stocks within the energy sector start displaying more favourable scores across our fundamental model. This may be as a result of a setback in production, poor drilling results and high CAPEX requirements for the unconventional drilling program.
How much has it added to your overall portfolio over the last 12 months?
We have held the stock since May 2013, and it has returned over 20% in six months, providing a solid gain to the long side of the portfolio.
Where do you see the value?
The stock scores very favourably on upward earnings revision and profit growth, as Drillsearch’s oil production guidance remains conservative and its wet gas commercialisation will be accelerated through the Santos JV. Drillsearch trades at a deep discount to its intrinsic value and provides exposure to the long-term potential of Drillsearch’s unconventional gas program. As a result, Drillsearch scores well across earnings, intrinsic value and relative value in our model.
Pengana Capital [1] is a funds management group specialising in listed equities, managing five active strategies focused on the Asia Pacific region. Elan Miller has been senior portfolio manager of Pengana’s Australian Equities Market Neutral Fund since January 2013.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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