Post by
savyinvestor333 on Jun 09, 2021 7:33am
From TD this morning
Topaz Energy Corp. (TPZ-T) C$14.97 New Acquisitions Provide Path to Long-term Growth
Event Equity Financing Closed. Revises Guidance and Increases Dividend
Impact: SLIGHTLY POSITIVE
On May 18, 2021, Topaz announced two strategic acquisitions totalling $347 million (see the body of the note for acquisition details). The acquisitions were funded with proceeds from a $204 million gross equity financing at $14.25/share and $143 million from previously available liquidity (cash and debt). After incorporating the acquisition into our model, we forecast that Topaz will exit 2021 with net debt of $57 million, leaving significant liquidity on its $300 million bank credit facility.
Accretive to 2022 CFPS: We estimate that the acquisitions will add 29% to 2022E CF, while increasing the share count by 13%. On a combined basis, 2022E CFPS is up 15%, while our NAV is largely unchanged.
Growth Assumptions Translate into Attractive Combined IRR: We estimate that the transactions were done at ~9.3x 2022E CF. Using TD's growth assumptions, flat US$65/bbl WTI, and $2.75/mcf AECO, we estimate a 12% IRR (~10% on the TOU Montney assets and ~17% on the Headwater GORR).
Dividend Nudged Up on Deal Accretion: In conjunction with these transactions, Topaz will increase its dividend by 5% to $0.84/share annualized, beginning in Q3/21. Based on our current commodity price outlook, we forecast a 69% dividend payout ratio. Under strip pricing, this improves to a TD-estimated 63% — the lowend of the targeted range (60-90%).
2021 Guidance Updated to Reflect Transactions: Topaz now forecasts 2021 production of 12.8-13 mBOE/d (up from 12-12.2 mBOE/d), with processing revenue of $57.3 mm (up from $51.7mm). Although not official guidance, the latest presentation includes a 2022 production estimate of 13,375 BOE/d.
TD Investment Conclusion We believe that Topaz will continue to benefit through 2022 and beyond as volumes on the acquired assets grow at no incremental capital cost to Topaz and the company inks incremental deals with current (and potentially new) strategic partners