TSX:CVE - Post Discussion
Post by
retiredcf on Feb 18, 2024 10:12am
RBC
Their upside scenario target is $34.00. GLTA
Outperform
TSX: CVE; CAD 23.51; NYSE: CVE
Cenovus Energy Inc. Patience Paying Off
Our view: Cenovus’ soft fourth-quarter results closed out a year characterized by similar performance, but this is now in the rear-view mirror. The company progressed its deleveraging plan with net debt at $5.06 billion as of December 31—and provided a constructive update on its upstream/downstream operating momentum. Cenovus will hold an investor open house in Toronto on March 5. We are maintaining an Outperform recommendation on Cenovus and our one-year target price of $28 per share.
Key points:
In our minds, Cenovus Energy remains the most compelling near term buying opportunity amongst the Canadian oil majors—despite its mixed fourth-quarter results—given encouraging signs of improving upstream/downstream operating momentum and its relative share price underperformance since last autumn. The company’s fourth-quarter results were punctuated by 1% higher upstream production of 808,600 boe/d, noticeably lower oil sands operating costs, and weak downstream margins of -$304 million in connection with inventory movements, some unplanned outages, and very soft cracks.
Net Debt Target. Achieving its $4 billion net debt target in 2024 remains Cenovus’ numero uno priority. The company’s net debt fell to approximately $5.06 billion as of December 31 (reflective of lower cash taxes and a working capital tailwind). We anticipate that the company could achieve its $4 billion net debt floor by the end of the third-quarter under both our base outlook and futures pricing.
Downstream Update. Cenovus’ downstream throughput rates were impacted by planned maintenance activities at its non-operated Borger refinery (50% wi) and Lima refinery (100% wi) in the fourth-quarter. Both refineries experienced temporary unplanned outages as well. The company’s Lloydminster Upgrader also experienced an unplanned outage in October. The good news is that in the first-quarter, Cenovus’ refinery kit is currently running at an average utilization rate north of 90%.
Free Cash Flow. We peg Cenovus’ free cash flow (before working capital movements and estimated base dividends, excluding A&D) at approximately $5.6 billion in 2024 under our base outlook and $4.9 billion under current futures prices.
Relative Valuation. At current levels and under our base outlook, Cenovus is trading at a 2024 debt-adjusted cash flow multiple of 3.9x (vs. our global major peer group avg. of 5.4x), and a free cash flow yield of 15% (vs. our peer group at 10%). In our minds, Cenovus should trade at an average/ modest discount multiple vis-a-vis our global peer group, reflective of its capable leadership team, strengthened balance sheet, mixed downstream operating performance and rising shareholder returns on the horizon.
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