2023 leverage ratio progress/forecastA quick analysis on how next few quarters are shaping out to be.
As expected, the counter balance to OPEC production cuts is working and fuel prices are holding so far. Though yet to be seen how they shape up in coming months but there is a strong chance oil prices might stabilize around $80/bb (or lower) as this is the target for OPEC (and is base scenario for AC). Even if it increases, AC has already pocketed the benefits of current low prices for all of Q2 and would have for half of Q3 if prices stay below $80 for June.
Based on the assumptions laid down by AC, following scenario is playing out Q by Q. Important number to check is Trailing EBITDA.
Quarter EBITDA Net Debt (Q1 FX) Trailing 12 month EBITDA Leverage Ratio
2023 Q1 $0.4B $6.5B $2.1B 3.11
2023 Q2 $1.2B $5.9B $3.1B 1.9
2023 Q3 $1.7B $5.0B $3.7B ~1.4
2023 Q4 $0.6B $4.7B $3.9B ~1.2
FX: US/CAD foreign exchange
In 2018/19 stock price played out as follows w.r.t leverage ratio (but with stock buy backs).
It was as low as $26 (sp rose rapidly from here) for leverage ratio of 1.8 and $52 (early 2020) for leverage ratio ~0.8.
One can expect the sp to continue to rise (its never a straigth line) from where we are today. 2023 cash flow will reduce the net debt substantially and expect the same for 2024. SP possibly would not follow the same 2019 trajectory and could be conservative this year. But it will definitely rise.
You can put your own numbers to target price.
Also, with increased interest rates (Canada), CAD$ appreciates and since most of the debt is in US denomination, net debt reduces and this leads to better leverage ratio and quicker. Last year, when CAD$ depreciated, net debt increase (paper impact unless payment is due) and worsened the leverage ratio. This year CAD $ is performing better than last year.