Raymond James
Yangarra Resources Ltd.
Strong Buy 1 | C$3.00 target
Jeremy McCrea (RJL)
3Q - Waiting for Recent Strong Well Results to Show in Financials
We think it's hard to find many companies that have grown as successfully and profitability as Yangarra vs. its peers. Unfortunately, investors wouldn't know it by looking at the current share price that has now fallen to levels not seen since September 2016, when 3Q16 production was 2,600 boe/d and funds flow was $0.04/sh (vs. 3Q19 rates at 12,720 boe/d; $0.22/sh).
Combined with improvements in both drilling and fracking designs, an annualized D/EBITDA falling to 1.8x (from 4.4x in 3Q16), the current valuation (regardless of methodology) would screen very attractive (i.e., 2.5x 2020E EV/EBITDA; 0.7x PDP blow-down NAV/sh). Although investors might point to an increase in gas-weighting for Q3 again, it is mostly the result of drilling gassier but also higher IRR wells at Ferrier/Chedder. Inside, we highlight institutional funds flow into the name.