Post by
retiredcf on Mar 29, 2023 9:20am
CIBC
Have an $18.00 target. GLTA
EQUITY RESEARCH
March 29, 2023 Earnings Update
SPARTAN DELTA CORP.
Updating Forward Expectations Following Completion Of
Strategic Repositioning Process
Our Conclusion
We take the conclusion of the strategic repositioning process for Spartan as
a positive event and we believe Spartan crystallized attractive value from the
sale of its Montney assets to Crescent Point. We also believe investors are
largely getting a free option at this stage on the Logan Energy spin-co. We
believe the continuation of Spartan Delta in its Deep Basin platform will
largely serve as a yield vehicle for investors, with greater upside potential in
the Montney assets retained in Logan. Our pro-forma estimates assume the
disposition of the Montney assets will close as planned in Q2/23, followed by
a special dividend of $9.50/sh, which we have modelled for Q3/23, but could
potentially close sooner. We adjust our price target to $18/sh (from $20/sh
prior), which is based on a sum-of-the-parts valuation reflecting: 1) the
realized Montney asset values and $9.50/sh special dividend, 2) expected
value of Logan Energy, and 3) expected remaining value of Spartan Delta’s
Deep Basin platform. While much value has been surfaced as a result of this
process, at the current share price we see relatively little value being given
for the Logan spinco, which we believe could carry attractive option value.
Key Points
Our estimated value post-transaction closing, ex-dividend, and post
Logan Energy spin out is ~$7.61/sh. On recent strip pricing, we estimate
the Gold Creek and Karr assets sold for 4.7x H2/23 annualized cash flow and
$51k/Boe/d. Both of these metrics screen well versus our pre-deal trading
valuation for Spartan trading at 3.0x EV/DACF on strip in 2023 and 2.8x in
2024.
Logan explore-co offers potential upside in the shares. We believe the
Deep Basin assets that will remain in Spartan Delta offer cash flow stability to
support an attractive dividend yield; however, we expect the Logan Energy
shares to offer future exploratory upside in the shares. The Flatrock region in
Logan is largely undeveloped at this stage, and although nearby analogues
are minimal, neighboring operators have demonstrated good success in the
Montney.
Our forward production and cash flow estimates represent SDE
retaining only the Deep Basin asset, which we assume will largely
transition into a gas-weighted yield vehicle for investors. We have
assumed a 40 MBoe/d run rate for SDE and capital efficiency of
~$12,500/Boe/d. We are assuming the Montney asset disposition closes in
Q2/23 and the spin-out of remaining Montney assets to Logan occurs in
Q3/23