Enerplus (ERF, Financial) had a solid first quarter. Not on this, but the company has also maintained a solid production rate which enabled it to see a good 14% growth in the fund flow. But there is another side of the coin as well. Despite good performance in the recently reported quarter the company is continuously losing market share main due to falling oil prices. Due to this softness in the market the investors are conservative about their spending in such a market and even solid financial performance by the company failed to impress them.
If we look at the five year share performance, the stock has been continuously falling and even now is trading close to its 52-week low. But the management thinks that it can overcome these headwinds and a strong balance sheet can help it gain market share in future. In addition, Enerplus is also having good hedging initiatives that can also support its growth. Let us have a look.
Focusing on the right areas
Enerplus is now focusing on various initiatives to improve its profitability and come back on track. Under its strategic moves, cost reduction stays at top priorities. Enerplus is now reducing 40% of its capital spending as compared to the last year. This will surely help it to improve its margins. While on the other hand, Enerplus is advancing to uplift the performance of Marcellus and Bakken projects as the company is seeing some positive growth signs in these. Mainly it is expecting these projects to ramp up the production in future.
Moving forward, Enerplus has now acquired a narrow approach towards profitability and it is now laser focused on its core assets only. This laser focus will also help it to drive better operational excellence. It is exciting to see that Enerplus has now planned to sell two of its non-core assets which it thinks will give good cash after sale. In fact, this sell out will help Enerplus to fetch about $182 million. This will lead the company to better financial flexibility by also making its balance sheet attractive. This can attract investors leading it to gain its lost market share.
But there are certain steps taken by the company which can be an obstacle in its growth story. The main drawback is that Enerplus has recently reduced its dividends to $0.05 per share from the current level of $0.09 per share. This might scare few customers away from the stock leading to further fall in the share price. But considering the near term oil price stability the management thinks it to be wise step.
Conclusion
Now looking at the fundamentals, the stock is cheap with a trailing P/E of 10.55 while due to the weak oil prices it is hard to express the near term earnings growth but as the company is advancing it is expected to show up well. The company can attract investors on the back of good profit margin of 19.60% leading it to improvement in the market share. But considering the weak market conditions I would like to suggest the investors wait for the market to recover and by that time should see investment in Enerplus Corporation from side line.
