Desjardins After attending Tamarack Valley Energy Ltd.’s Investor Day event on Monday, Desjardins Securities analyst Chris MacCulloch said he was “impressed by the economics and technical breakdown of the asset portfolio, the transformation of which is now complete following several years of M&A.”
“The company also outlined a measured five-year plan that will deliver 3–5-per-cent annualized organic production growth, bolstered by waterflood, which should support further debt repayment and a significant acceleration in share buybacks, with a view toward delivering a 15-per-cent CAGR [compound annual growth rate] in FCF per share,” he added.
In a research note titled Eyes on the FCF prize, Mr. MacCulloch called the returns on Tamarack’s Clearwater and Charlie Lake plays “phenomenal,” adding “management highlighted it is now achieving multiple levels of payout (2–4 times) over a five-year period through multi-bench development, the deployment of new technologies and the continued success of its waterflood program.”
“The five-year plan is primarily focused on delivering growth in debt-adjusted FCF on a per-share basis and retaining flexibility to adjust capital allocation, depending on commodity prices and the underlying equity valuation,” he said. “While questions naturally gravitated toward a potential acceleration of the planned 3–5-per-cent organic growth trajectory, management vocalized its desire to remain nimble. Under the revised return-of-capital framework, the company expects to pay 75 cents per share of base dividends over the next five years, reduce net debt by 90 cents per share and provide $1.60/share of share buybacks at US$75/bbl WTI, the sum of which nearly equates to the current stock price in value creation for shareholders. In terms of buybacks, TVE expects to exhaust 20–60 per cent of its currently outstanding share count over the next five years, depending on commodity prices. The reduction in share count is expected to drive significant growth in per-share metrics, including a 15-per-cent CAGR in FCF per share over the next five years, which will effectively double from current levels.”
Mr. MacCulloch reiterated his “buy” recommendation and $5 target for the Calgary-based company’s shares. The current average is $5.16.