Logan Energy Corp.
(LGN-V) C$1.02
Differentiated Growth Potential from a Proven Management Team
Event
We are initiating coverage on Logan Energy Corp at BUY.
Logan was created through the strategic restructuring of Spartan Delta (SDE- T). The outcome of that process resulted in the majority of its Montney production being sold to Crescent Point and a small amount of Montney production and a significant amount of Montney acreage spun out to a newly created high-growth junior producer - Logan Energy. Logan will be led by Richard (Rick) McHardy (President/CEO), who was the former Executive Chairman of Spartan Delta and founder of all four previous Spartan iterations, and Brendan Paton (COO), who was a founding member and VP Engineering of Spartan Delta.
Given the initial capital raise, Logan began life as a well-capitalized public entity (~$109mm net cash). We estimate this should allow Logan to grow production to ~10,000 mBOE/d by mid-2024, before adding debt to the capital structure. Logan's current valuation is a material premium to its peers. However, given the large asset (300 sections of Montney) and significant growth potential, we believe the business will grow into its valuation. We forecast Logan will grow 180% by YE-2024E, 280% by YE2025, and 350% by YE-2026. Through YE-2026, this equates to a CAGR of ~50%.
In our view, the team and predecessor companies have been extremely successful value-creators. The last four iterations of Spartan generated CAGRs of 35-135%. Management's track record, combined with a strong initial valuation, could pave the way for equity-funded M&A, which could enhance value creation for shareholders beyond the scenario we outline. We see Canadian natural gas prices as well supported for the next couple of years based on our view that the market becomes more balanced through 2024 and incremental LNG export capacity materializing by 2025.
TD Investment Conclusion
In an E&P investment landscape that is dominated by strategies involving muted growth and returning capital to shareholders, Logan is unique. Logan offers investors exposure to early stages of an E&P business that has potential to create significant shareholder value through high production/CF/reserve growth. We are initiating coverage on Logan Energy at BUY and $1.40 target price that is based on 5.5x 2026E EV/DACF (assuming 2026E WTI of US$63/bbl).