In 2006, Precision Drilling (PD.TO) shares traded at almost $800 a share, today they are less than $100 a share. The shares consolidated on a 20 for 1 basis in 2020 and the foregoing per share data are the adjusted numbers and are entirely comparable.
In 2006, the company was conservatively managed with little debt and that debt more than offset by the cash balance. It was than an “Income Trust” and paid regular distributions to shareholders. CEO Hank Swartout, the founder and driving force behind the company’s growth to a market value of ~$7 billion, retired in 2007 and was replaced by current CEO Kevin Neveu, who at the time was in his mid-40’s.
Neveu presided over a decline in the value of Precision Drilling but not a decline in his own compensation. In the past three years, Neveu has been paid a total of almost $20 million. Precision’s once pristine balance sheet now carries about a billion dollars of debt and the share count, artificially reduced by the share consolidation, now totals only 14 million shares.
One benefit of having very few shares outstanding is the way it makes share awards to management seem sensible when they are not. First quarter 2024 executive compensation is reported to be $23 million. For last year, compensation earned or vested during the year for the five top executives comprised about $30 million.
The outlook for Precision Drilling is robust today, with it rating a “Top Pick” by famed energy fund manager Eric Nuttall. The company plans to use most of its free cash flow to reduce debt by $100 to $200 million each year and every $100 million less debt adds about $7 a share to equity. Analysts are typically positive on the story.
This is a case of sell-side analysts ignoring governance and pointing to short term profits as the basis for trading decisions by retail investors. But for me, with a decades long investment horizon, I won’t touch an investment in a company managed by people who help themselves to the treasury and spend hundreds of thousands on “compensation consultants” to launder their greed.
Interesting - b/c of the change from an income trust to a corp. in 2010, it's challenging to chart back to the 2005/6 period. It's pre-consolidation shares must have been trading at less than $0.50/share in the 2020 trough.