October 12, 2023
Baytex Energy Corp.
Highlights from RBC Desk Presentation
Our view: Our bullish stance toward Baytex reflects the company’s solid leadership team, increased scale in the Eagle Ford following the announced closing of the Ranger acquisition, strong operating performance and rising shareholder returns. We are maintaining an Outperform recommendation and our one-year price target of $8.50 per share.
Key points:
Baytex Energy presented yesterday to a group of institutional investors and RBC Capital Markets’ Sales & Trading team, with Eric Greager (President & CEO), Chad Kalmakoff (CFO), and Brian Ector (SVP, Capital Markets & Investor Relations) in attendance. The discussion delved into a number of topics including the integration of Ranger following acquisition close, the most attractive assets for deploying capital, and the company’s deleveraging progress and shareholder returns. Please see Page 2 for the highlights from the presentation.
3Q Preview. Our third-quarter outlook for Baytex incorporates equivalent production of 150,000 boe/d in the context of a $450 million capital program, reflective of the Ranger acquisition and some modest capital spending acceleration. Our production outlook in the quarter includes Canada heavy oil production of 34,000 bbl/d and light oil & NGL volumes of 20,000 bbl/d. In the Eagle Ford, reflective of its recent Ranger Oil deal (which closed June 20), we peg Baytex's oil & liquids production at 74,000 bbl/d with natural gas production of 85 mmcf/d. All said, we peg Baytex's third-quarter FFO per share at $0.65 ($552 million).
Relative Valuation. Under futures pricing, Baytex is currently trading at a 2023E debt-adjusted cash flow multiple of 3.4x (vs. our North American intermediate peer group avg. of 4.1x) and a free cash flow yield of 13% (vs. peers at 9%). On the basis of 2024E, the company is trading at a debt-adjusted cash flow multiple of 2.2x (vs. peers at 3.3x) and free cash flow yield of 22% (vs. peers at 13%). In our minds, Baytex should trade at an average cash flow multiple given its solid operating performance, strengthening balance sheet and rising shareholder returns.