Nat Bank Daily Bulletin published on June 29thTamarack Valley Energy Ltd. Beat Reflects Strength TVE (TSX) STOCK RATING TARGET EST. TOTAL RETURN C$4.49 Outperform (Unchanged) C$8.00 (Unchanged) 80.8% Q2/22
Financial & Operating Results
Q2/22 Financial & Operating Results TVE reported second quarter operating & financial results ahead of expectations, including average production of 43.8 mboe/d (74% liquids) and associated CFPS of $0.46 (vs. consensus $0.42). Volumes were as expected (net of third party downtime), while the main positive variance on cash flow came as a function of higher than anticipated realizations (higher by $5/boe net of hedging & royalties), and which in sum, continued to positively reflect the sustainability & resilience of the business, with modest expansion (+6%) realized on the basis of a ~50% payout to imply a ~20% annualized FCF yield.
Operational Momentum;
Clearwater Expanding Assets and operations continue to positively evolve through the period, with its Clearwater assets realizing positive results in their respective phases of exploration, development & waterflood, in addition to continued consolidation across the project, (15 sections added at Peavine offsetting the best wells in the entire play). In sum, we continue to see its footprint in the Clearwater (~15 mboe/d & ~600 sections of land) as one of the greatest value-drivers of the business (potentially validating ~60% of its EV on a risked basis; up to 80% looking through to 2023;
Return of Capital & Capitalization Update
It remains committed to its balanced model of growth & returns, as depicted by the previously noted increase to its sustainable base dividend (3% yield, <25% payout for Q2), while having initiated enhanced returns during the quarter buying back 1.2 mln shares. When debt is below $400 mln (Q3/22e), 50% of discretionary free cash will be returned (+10% implied annualized yield), and when debt is below $200 mln (‘23e), 75% of free cash will be returned (17% implied yield) – that is, strong visibility to expanding return of capital that should support yield contraction & support to its valuation.
Maintain Outperform Rating & $8/sh Target Price Strong quarter from the company, positively reflecting the sustainability & resilience of the business, which continues to support value & returns through its balanced & disciplined approach; TVE is poised for a 40% return profile (vs. peers 63%) on leverage of -0.2x (vs. peers -0.1x), while trading at 2.6x 2023e EV/DACF (vs. peers 2.0x).