Currently have a $32.00 target. GLTA
CENOVUS ENERGY INC
First Look Q3/23: Adjusted FFO Ahead Of Our Expectations
And Consensus
Cenovus reported Q3/23 results which were ahead of our expectations and
consensus on adjusted FFO per share. Variances to our estimates stemmed
primarily from stronger-than-expected realizations in the oil sands business
unit. Key takeaways from the quarter include a strong FIFO-LIFO contribution
to downstream margins of ~$400 million, first production from the MAC field
in Indonesia, strong throughput on downstream operations with stable
runtime on the FCC Unit at Superior achieved in early-October, and $600
million of partial payment towards the common share warrant obligation.
Financial And Operating Takeaways:
Q3/23 results. Production of 797 MBoe/d (78% liquids) was in line with our
estimate of ~792 MBoe/d (82% liquids) and consensus of 790 MBoe/d (range
of 787 MBoe/d to 794 MBoe/d). Adjusted FFO per share of $1.81 was ~10%
above our estimate of $1.64 and consensus of $1.63 (range of $1.50 to
$1.73). Capex of $1,025 million was in line with our estimate of $1,050 million
and consensus of $1,099 million (range of $1,051 million to $1,213 million).
Shareholder returns. The company delivered $600 million to shareholders
through partial payment of the common share warrants obligation, $361
million through its NCIB (13.8 million shares), and $264 million through
common share base dividend. The current NCIB expires on November 8,
2023 and the company plans to apply for approval to repurchase ~133
million shares in the upcoming application. The company exited the quarter
with ~$6 billion in net debt and currently returns 50% of excess free funds
flow to shareholders.
Downstream operational update. Downstream reported throughput of ~664
MBbl/d, below our estimate of ~690 MBbl/d. U.S Manufacturing utilization
was 88% (70% in Q2/23) as the Toledo Refinery performed well following the
Q2/23 restart while the Superior Refinery achieved full and stable start-up of
the FCC unit in early October. Canadian Manufacturing utilization was 98%
(86% in Q2/23) while the Lloyd Upgrader and Refinery operated at or near
full capacity, with utilization rates of 99% and 96%, respectively.
Valuation. Cenovus trades at a P/RNAV ratio of 88%, a 2024E EV/DACF of
4.4x and a 2024E FCF yield of 15%, vs. the large-cap group at 95%, 5.0x
and 14%, respectively.