Surge Power: Shareholder Payday Presumably Postponed (Technical Evaluation)

Surge Power (TSX:SGY:CA) (OTCPK:ZPTAF) is a higher-risk choice if you’re on the lookout for some additional oil & gasoline publicity. The corporate has come beneath fireplace for a few of its debt administration over time, however given the place oil costs have been the previous few years, the steadiness sheet seems a lot better now. That mentioned, the corporate appears to at the moment be extra centered on acquisitions than paying down that debt and rewarding shareholders. Whereas the corporate remains to be set to hit its debt targets in 2024, current strikes have left shareholders a bit confused about what the precise primary precedence is. I stay bullish on Surge given the trade it’s in, however I shall be ready to see what the brand new plan is when This fall outcomes come out earlier than including Surge to my portfolio.

How’s The Dividend?

Rising!! For now… The brand new dividend, payable on February 15th is up to $0.04 per share. In Q3, we noticed the corporate pay out $8.8 million to its shareholders within the type of money dividends. As it’s possible you’ll or could not know, future will increase will all come on the again of debt discount. Wanting beneath, we will see precisely what the construction will appear to be.

What Does The Value Say?

As talked about, the now seems nice, and the longer term is a bit of shaky, which is why the inventory is as undervalued because it’s coming throughout beneath. Nonetheless, if we have now realized nothing, it is that “worth” is a humorous time period. Let’s dive into what the technicals should say.

Those that owned Surge in 2011 will recall the great days. After accounting for the break up, the inventory was value just below $100 per share. Quick ahead to at this time and the inventory is down 90% sitting just below $10. However all the pieces is relative as a result of those that purchased in 2020 are laughing as they’re up wherever from 200-600%.

Will we see $40 for Surge sooner or later? Perhaps. I’d by no means make that decision given the present state of the market/trade. However let’s take a look at simply the place we may go over the subsequent couple of years. Beginning with the optimistic, we will see two stepping stones on our option to $23.50. I at all times like to make use of horizontal worth ranges to see the place shares have discovered help or resistance up to now. Wanting beneath, we will see $14.00, $18.75, and $23.50. The dangerous information right here is even the $14.00 is sort of a 50% improve from present ranges. However if you wish to set longer-term worth targets, that is how I’d go about it. Due to this fact, my present worth goal for Surge is $14.00.

Zooming in a bit nearer, we will get a greater funding plan. Wanting beneath, we see two highlighted ranges. $8.00 and $7.15. Now, that is the place measurement comes into play. It’s totally clear that one in all these ought to be your cease if you’re getting into at this time with a medium-long-term view. The difficulty is how far they’re from our present worth. To get to $8.00 the inventory would wish to fall ~15%, which is a little more threat than I like to reveal myself to. The answer to that is sizing. When you take much less of a place, you’ll be able to nonetheless reap the rewards with the identical quantity of threat. I’d wish to take a two-tiered cease strategy to this, given what we’re seeing beneath. Promoting 50% at $8.00 and the opposite 50% at $7.15. If the inventory reacts correctly, you would even take a look at shopping for again that fifty% on any optimistic bounce off the $7.15 help.

The priority I’ve right here is the very apparent descending triangle that I’ve drawn above. That is sometimes a bearish sample and also you anticipate a break on the backside of the triangle. Nonetheless, we did simply see the highest of the triangle breach. The subsequent few days will define which method we may very well be going within the brief time period. I’d wish to see this sample break earlier than initiating a place. However, should you select to take action, it is very clear the place your stops ought to be. I’m bullish on Surge, however cautious for the time being. Defending capital is my primary precedence.

Wrap-Up

As you’ll be able to see, Surge may actually go both method. It is too dangerous they made this acquisition once they did. I do know alternative would not knock day by day, however I do assume it despatched the improper message to shareholders. I’m excited to see what they should say about it within the year-end outcomes. Hopefully, there’s a new debt goal plan, and shareholders will nonetheless be rewarded on schedule. If not, we may see a really pink day on March eighth. Till then, I shall be on the sidelines watching this one carefully.

Editor’s Notice: This text discusses a number of securities that don’t commerce on a serious U.S. alternate. Please concentrate on the dangers related to these shares.