Considered to be one of the more conservative of the investment firms. GLTA Barclays analyst Anthony Linton initiated coverage of the Canadian oil and gas sector with a “positive view” on Wednesday.
“The sector faced a series of headwinds from 2016 to 2020, including commodity price volatility, egress constraints, and demand challenges related to COVID-19,” he said in a note. “However, companies within our coverage were able to capitalize on opportunities through the downturn, reflecting the quality of their operations, and translating into asset growth and improved leverage profiles. We believe these changes should leave them well positioned through 2023 despite recent commodity price volatility. In that regard, our positive view reflects the quality of the operators and their commitment to disciplined production growth with well-defined return of capital initiatives, against a backdrop of improving commodity prices through the year, thus supporting solid leverage profiles. Across oil-weighted producers (ERF, PXT, and WCP), we see the greatest upside potential for PXT and WCP, as reflected in our Overweight ratings. We are Equal Weight ERF following a strong outperformance from the stock in 2022. Despite expectations for lower natural gas prices in 2023 (on both our forecasts and strip), we are Overweight gas-weighted producers (ARX and TOU), as we believe their disciplined growth strategies and sophisticated marketing operations should support solid FCF generation and incremental shareholder returns.”
“We enter the year with cautious optimism on midstream names within our coverage, as the tailwinds of volume growth should support fee-based EBITDA growth and return of capital initiatives. This positive view is counter-balanced by valuation headwinds from a persistently higher rate environment in 2023 (albeit with a dovish outlook later in the year), and a call for lower crude-by-rail volumes. In that context, we orient ourselves within the space to expected near-term volume growth opportunities - exposure to growing Montney volumes. Within the sector, we are Overweight on ALA owing to our favourable view on valuation. We are Equal Weight on PPL and KEY for reasons of valuation and timing of incremental return of capital initiatives, respectively. While we like the strong balance sheet and asset positioning of GEI, our Underweight rating is reflective of what see as a subdued outlook for growth relative to peers in 2023.”
The analyst gave these stocks “overweight” ratings:
- AltaGas Ltd. with a $29 target. Average: $31.31.
- Arc Resources Ltd. with a $22 target. Average: $24.70.
- Parex Resources Inc. with a $29 target. Average: $34.20.
- Tourmaline Oil Corp. with a $85 target. Average: $94.69.
- Whitecap Resources Inc. with a $14 target. Average: $14.50.
He gave “equal-weight” ratings to these:
- Enerplus Corp. with a $28 target. Average: $24.42.
- Keyera Corp. with a $34 target. Average: $34.07.
- Pembina Pipeline Corp. with a $52 target. Average: $51.29.