Pulse Seismic Inc., a Calgary-based company, owns and licenses two- and three-dimensional seismic data to help oil and gas companies explore for new reserves.
A drop in the share price of energy services company Pulse Seismic Inc. is a buying opportunity for investors looking for a longer term oil and gas play, analysts say.
The Calgary-based company owns and licenses two- and three-dimensional seismic data to help oil and gas companies explore for new reserves. Shares of the company, which holds Canada's second-largest seismic data library, have fallen about 35 per cent so far this year as lower natural gas prices pinch energy producers' spending.
Most analysts that cover the company expect its shares to recover some of their losses in the coming months.
Pulse could also gain new customers from the emerging liquefied natural gas industry in British Columbia, said Cantor Fitzgerald analyst Peter Prattas, who has a "buy" on the company and $3.40 price target.
"[Pulse] will be a beneficiary as more assets are developed," said Mr. Prattas.
Pulse licenses its data for a fee and adds to its library through acquisitions and participation surveys, where it partners with customers to collect data, then retains the proprietary rights. While its revenues can be erratic from quarter to quarter, investors like Pulse's historical operating cash margins of 75 to 85 per cent and that it pays a steady dividend yielding about 2.5 per cent.
"It's a cash machine," with the potential to grow through acquisitions, said Industrial Alliance analyst Elias Foscolos, who has a "buy" on the stock and a $3.50 target price.
That's about 15 per cent above where the company is currently trading and below its all-time high of $4.96 reached late last year, after fund manager Jason Donville at Donville Kent named the stock as a top pick for 2014.
Stonegate Securities analyst Dan Trang said Pulse has a unique business model and a strong position in the Western Canadian energy market with a recurring revenue stream.
"They've got a library that can't be duplicated," said Mr. Trang, who values the company between $3.63 to $4.48 a share.
Pulse has about 300 oil and gas customers. Its library holds three-dimensional data on about 28,300 square kilometres and two-dimensional data on about 340,000 kilometres, in areas that include the Western Canada sedimentary basin in Alberta, northeast B.C. and Saskatchewan, as well as parts of Manitoba, Yukon, the Northwest Territories and Montana. Its largest competitor is the Canadian division of privately held Seitel Inc.
Risks for Pulse include a major slowdown in oil and gas exploration activity and any new technologies that could disrupt its business model.
While Pulse has been affected by a drop in natural gas prices, chief executive Neal Coleman said business is picking up.
"We are seeing a lot more [M&A] activity than we did in 2013, which is a positive thing for our business, because our assets don't transfer," said Mr. Coleman. Pulse's data can't be passed from company to company and must be repurchased every time.
He said the company also has low operating costs because its assets are mostly digital, while other energy services firms need to buy and maintain more costly items such as heavy equipment.
Mr. Coleman said Pulse is also actively looking to acquire more data to expand its library.
Not everyone is ready to buy Pulse after its pullback. Paradigm Capital analyst Gabriel Leung has a "hold" on Pulse shares and a $3 target, citing "soft" exploration in the oil and gas sector in Western Canada.
"We prefer to see a broader and more consistent base of customer wins before becoming more aggressive with our estimates," Mr. Leung said in a note.