TSX:ERF - Post Discussion
Post by
retiredcf on Jan 25, 2023 10:18am
RBC
This is a USD target and their upside scenario target is US $29.00. GLTA
January 25, 2023 Outperform
NYSE: ERF; USD 17.57; TSX: ERF
Enerplus Corporation Update with Ian Dundas
Our view: Enerplus remains our favourite intermediate producer given its capable leadership team, solid execution, strong balance sheet and rising shareholder returns. We are reaffirming an Outperform rating on Enerplus and our one-year price target of $21 per share. Enerplus is on our Global Energy Best Ideas list.
Key points:
Our recent discussion with Enerplus Corporation’s President & CEO, Ian Dundas, emphasized the company’s objective to deliver predictable and consistent operating performance as it looks to unlock further shareholder value, which could potentially include a substantial issuer bid (SIB) down the road.
Operational Update. Extreme winter weather conditions in North Dakota in December did not materially impact Enerplus’ operations. The company executed all of its planned well completions in the fourth-quarter—and by design does not plan completions for December or January given the complexity of running activity in the Bakken during those months. On the inflation front, Enerplus has been able to partially offset oilfield inflationary pressures with two rigs under contract through 2022-23 at day rates that are well under current market pricing.
Patience in A&D. Enerplus intends to remain patiently opportunistic on the A&D front given comfort with its drilling inventory in the Bakken. The company believes this affords them the ability to assess current market conditions, making patient decisions accretive to shareholders in regard to weighing potential transactions against returning capital via share repurchases and dividends. Enerplus noted that the benefits of portfolio diversification could be diluted by insufficient scale as a company. Accordingly, if Enerplus elects to acquire, the Bakken should remain its first choice.
FCF and Shareholder Returns. We peg Enerplus’ free cash flow (before dividends and including A&D) at approximately $974 million in 2022 and $723 million in 2023 ($92 WTI, $4.75 Henry Hub) under our base outlook. Under futures pricing ($80 WTI, $3.63 Henry Hub), we expect Enerplus to generate $481 million of free cash flow in 2023. Our outlook for Enerplus factors in share repurchases of $390 million in 2023.
Relative Valuation. At current levels, Enerplus is trading at a 2023E debt- adjusted cash flow multiple of 2.8x (vs. our North American Intermediate E&P peer group avg. of 2.7x) and free cash flow yield of 21% (vs. our peer group avg. of 19%). We believe the company should trade at an average/above average multiple given its consistent operating performance, capable leadership team, shareholder alignment and strong balance sheet, partly off-set by portfolio concentration.
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