BMO Upgrade With its “momentum set to continue,” BMO Nesbitt Burns analyst Mike Murphy raised his rating for Spartan Delta Corp. to “outperform” from “market perform.”
“With cash flow bolstered by the current constructive pricing environment, we expect Spartan Delta to start delivering meaningful shareholder returns in the near term combined with sustainable production growth moving forward,” he said. “SDE trades attractively at a 26-per-cent 2022 estimated free cash flow yield vs. Montney peers at 21 per cent (BMO Deck).”
Mr. Murphy expects Spartan to outline its shareholder return of capital plans in the coming months, given it is now approaching its leverage target of 0.5 times debt to cash flow.
“We anticipate this to be skewed towards buybacks initially, given current valuation,” he said. “The company has the ability to repurchase approximately 8 per cent of its shares outstanding through a potential NCIB.
“Based on operational performance to date, we see upside to 2022 production guidance of 68.5-72.5mboe/d and have forecast annual volumes at the very high end of this range. We also see potential for capital acceleration into Q4/22, which would set the company up for incremental growth next year, beyond our current estimate of 8 per cent.”
Seeing it “positioned for growth in the Montney” and touting its “attractive” valuation, Mr. Murphy hiked his target for its shares to $18 from $14. The average is $18.80.