My fellow Fool Jim Royal penned an article last week that suggested we could be heading into "a golden age for gas." He highlighted major U.S. natural gas companies like Chesapeake
While Jim's article was great, what really jumped out at me was the first article comment. It came from someone with the screen name DonGrayPeyto and said, in short, that while Ultra is a fine company with low costs, Canada's Peyto Exploration and Development (Toronto: PEY.TO) has an even lower cost structure and a long inventory of reserves that makes it a stock worth owning.
And who exactly is DonGrayPeyto? As he made very clear in his post, he is Don Gray, Peyto's current chairman and one of the company's founders.
Red alert!
Sirens immediately started going off in my head as I thought back to the wild work of Whole Foods'
But still, Peyto is no small fry -- at market prices, the company is worth nearly $3 billion -- so what is the chairman/founder of a company like this doing spending time pitching his company's stock directly to individual investors online?
To find out, I figured I better head to the source.
Not on steroids
Gray was good enough to spend time on the phone with me, discussing the motives for his bit of guerrilla marketing. In short, Gray said he believes that from the perspective of attracting investors, Peyto may get overlooked in the U.S. since it's a Canadian-listed company. Gray also thinks the Canadian market tends to be a very "promotional" one and Peyto is put at an even bigger disadvantage because Peyto has largely eschewed sweet-talking Bay Street (our northern neighbor's version of Wall Street).
He said it's as if a bunch of runners are lining up for the 100-meter dash at the Olympics and you're the only runner that's not on steroids. That's the position he sees Peyto having to grapple with.
As a result, Gray doesn't think the investment community appreciates how undervalued Peyto's stock is compared to its peers.
There may be merit to Gray's view that Peyto gets overlooked. In the U.S., nearly 80% of Chesapeake's shares are in the hands of institutional investors, while the percentage is close to 90% at Ultra Petroleum. It's not nearly as high among Canadian companies, with Crescent Point Energy at 29%, Trilogy Energy sporting 17%, and Tourmaline with 12%. But what of Peyto? A mere 3%.
Gray and Peyto also seem to have pretty tough competition when it comes to getting investors fired up about the company's stock. A gushing 2010 article from The Globe and Mail suggests that Tourmaline might be a particularly good example of what they're up against. The article lauds Tourmaline founder Mike Rose who, prior to starting Tourmaline, made big money for his investors by selling Berkley Petroleum to Anadarko
While those sales no doubt go a long way toward getting investors excited, The Globe and Mail article described Rose as "a master of Power Point presentations" and noted that with Tourmaline "the team … deployed the same formula -- acquiring land, raising capital, building expectations."
Cheap money
The latter bits about building expectations and raising capital are especially important and bring me to the crux of my issue with Don Gray and Peyto. Tourmaline -- and Duvernay and Berkley before it -- relies heavily on selling new equity to fund a seriously aggressive capital spending program. Investor excitement and a huge stock valuation are major boons for Tourmaline because they come with a plummeting equity cost of capital for the company.
Is Peyto jealous of this low-cost financing? It'd be hard not to be. And this is far from academic, as Peyto raised a significant amount of money through selling equity last year; with a low current cash balance and capital spending that's been outstripping cash flow, the company could be gearing up to sell more stock in the near future. If more investors find their way to Peyto's stock, the company's implied cost of raising any new money would drop and make future projects more profitable.
Hate the player or the game?
While article comments and message boards aren't typically where you'll find company executives pitching their stock, the pitching itself is hardly unusual. After all, what do you think CEOs are doing when they appear on CNBC's news segments or Jim Cramer's show? And while Gray's may have been a somewhat mini-campaign, it's obviously bearing some fruit since it caught my eye and I'm writing about it.
But I'm curious to hear what the Foolish community thinks about Gray's tactics and "stock marketing" in general. Take the poll below and then chime in with some more color in the comments section.
