Perpetual Energy Update: Eric Nuttal and his Lemmings

Perpetual Energy’s (TSE:PMT) stock capitulated almost 10% within minutes of opening this morning and closed the day 7% down while natural gas prices were recovering following Eric Nuttal from Sprott Asset Management’s appearance on BNN yesterday. Eric trashed Perpetual Energy on TV with the following points:

  • retail investor base only
  • dividend cut in the pipe
  • natural gas weighted
  • too much debt

Eric also mentioned that he had been short the stock which means he was simply promoting his own personal agenda. While he slammed PMT for being natural gas weighted, he recommended buying Encana!

Here are his comments posted on

DON’T BUY Perpetual EnergyPMT-T 4.430 Wildly over valued natural gas stocks. 97% natural gas. Have some hedging, but even with that they have a high cost base. Debt up to their eyeballs at 4.2 times. Trades at just under10X enterprise value to cash flow using $4.25 Cdn pricing. 13.5% yield, which he feels is in jeopardy.

BUY Encana CorpECA-T 28.300 Dividend yield is very safe. Have a good hedging position next year and are the most cost efficient operator. Good stock for the 2.9% yield alone and he would expect a 15%-20% appreciation next year on an uptick in gas prices.

Seriously, who invests in a company not knowing what its energy weighting is? PMT is clearly a natural gas weighted company and I’ve mentioned before that it’s their potential game changers that are worth investing in besides their natural gas exposure. By the way, what is Encana’s energy weighting?

Even with a 59% payout, it should have been clear for any investor that the dividend is in danger if prolonged weakness plagues natural gas prices. However, I have heard it from the horse’s mouth; Perpetual would remain an income oriented corporation. The dividend might get cut but it will not be eliminated until further notice.

It seems that a big part of the retail investor base he mentioned followed Eric right off the cliff losing hundreds of thousands of dollars. Eric Nuttal could be right in his assessment but I have my doubts given the blatant contradiction in his recommendation. I am also inclined to think these retails investors deserved losing every penny today for sheepishly following recommendations from TV. Didn’t it occur to anyone that Eric could be promoting his own agenda? Didn’t anyone see the obvious conflict of interest?

While there is no denying that natural gas prices have considerably weakened and that PMT has a good chunk of debt this does not come as new information. With today’s volume at 2.77 million shares, the buyers might turn out to be the “smart” money everyone talks about. Time will tell if being the sheep was more profitable than sticking to fundamentals!

I have not picked up any new shares and have not sold any either. November 8 will answer many questions when they release their Q3 report. Capex for 2011 will be discussed and the dividend issue might be addressed. We will also be getting the much anticipated results of 5 Cardium wells and 1 Wilrich well that have been delayed by the weather like for every other company in the patch.

Today was a free lesson on human psychology and behavior. I have this to say to those of you who lost money because you reacted instinctively to Eric Nuttal: sheepish behavior will get you slaughtered!