Canadian energy stocks delivered record profits in 2022 due to elevated oil prices and geopolitical tensions. Lower oil prices in the last 15 months have meant the valuations of TSX energy stocks have pulled back significantly, allowing you to go bottom fishing and buy quality companies at a discount.
Here are two cheap energy stocks value investors can consider buying right now.
Secure Energy Services stock
Valued at $3.2 billion by market cap, Secure Energy Services (TSX: SES) is engaged in verticals such as waste management, oilfield services, and energy infrastructure. Its waste management business includes a network of waste processing facilities, industrial landfills, and metal recycling facilities.
The Energy Infrastructure business includes a network of oil pipelines, terminals, and storage facilities. Finally, the Oilfield Services business is engaged in drilling fluid management, equipment rentals, and project management services.
In 2023, Secure Energy Services executed two infrastructure growth projects supported by long-term commercial agreements. These projects should generate reliable cash flows for the company, which might translate to higher dividend payouts.
Down 58% from all-time highs, Secure Energy Services pays shareholders an annual dividend of $0.40 per share, translating to a forward yield of 3.5%. In the last seven years, these payouts have risen by more than 25% annually, which is exceptional.
In 2023, Secure Energy returned $280 million to shareholders, or $0.95 per share, via dividends and buybacks. Its share buybacks lowered the outstanding share count by 7%, contributing to an 11% improvement in adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) per share.
Priced at 13.4 times forward earnings, Secure Energy Services stock is quite cheap and trades at a discount of 10% to consensus price target estimates.
Ensign Energy Services stock
Valued at $440 million by market cap, Ensign Energy (TSX: ESI) provides oilfield services to the crude oil and natural gas industries. It offers well drilling and specialized drilling services to energy companies. In 2023, Ensign Energy derived close to 60% of its sales from the U.S., 25% from Canada, and the rest from international markets.
The company reported revenue of $1.79 billion in 2023, an increase of 14% year over year. Ensign attributed the increase in sales to favourable industry conditions and revenue rate improvements. Its adjusted EBITDA stood at $490.2 million, up 31% compared to 2022, while funds flow from operations rose by 25% to $465 million.
An increase in profit margins and cash flow allowed Ensign to reduce its balance sheet debt by $217.6 million. In the last five years, it has reduced net debt from $1.68 billion to $498 million. In fact, Ensign reduced its net debt by more than $1 billion since 2019 despite completing two accretive acquisitions totalling $163 million.
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Priced at 7.5 times forward earnings, Ensign Energy stock is quite cheap, given analysts expect earnings per share to improve from $0.22 per share in 2022 to $0.53 per share in 2025. Analysts tracking the TSX energy stock remain bullish and expect it to surge over 50% in the next 12 months.
Ensign ended 2023 with a funds flow of $2.53 per share, which indicates the stock is priced at less than one times trailing cash flow, making it one of the cheapest energy stocks in Canada.
