In a separate note, Mr. Arif raised his target for Surge Energy Inc. to $13 from $12.50, reaffirming an “outperform” recommendation following meetings with its management. The average is $12.30.
“We believe that the outperformance showing up for SGY stock is in its infancy,” he said. “Heading into 2024, we view SGY as very well positioned, with room for a dividend bump, significant further debt reduction, a firming up of its current open hole multilateral successes, and optionality for to find additional pockets where open hole multilaterals would make economic sense on its existing acreage − highlighting the free call option associated with its large oil in place. Additionally, divcos like SGY are well positioned to be consolidators and acquirers in its existing core areas of Sparky and SE Sask, and with the equity markets opening up on both sides of the border, the potential for accretive acquisitions could also enter the picture in 2024. Finally, as highlighted in our Chart of the Day on September 15, we believe SGY offers among the best exposures in the midcap space for WTI sensitivity, from both a CFPS sensitivity perspectives as well as a stock price sensitivity associated with EBITDA trading multiples. Therefore, despite the move up in the stock stemming from the late-June rally in crude, we believe that SGY has significantly more room to run given its current 2024 strip valuation of 3.0 times 2024 EV/DACF.”