Scotia's notes on PLT Parallel Energy Trust (PLT.UN, $4.20, 2-SP, $7.00 target) – Distribution Cut, 2013 Budget Announced, and CEO
Feuchuk to Retire
Parallel announced it is reducing its monthly distribution to $0.05/unit from $0.08/unit, the retirement of CEO Dennis
Feuchuk, and its 2013 capital budget and production guidance. Parallel's yield is reduced from 24% to 15% following the cut,
which still appears attractive from a yield perspective and looks to be sustainable based on our updated estimates (99%
effective payout for 2013E versus FAIT peers at 135% and Cdn yield E&P at 146%). In our view, production stability
remains crucial towards improving Parallel's trading valuation, which could lead to yield compression from
current levels.
CEO Dennis Feuchuk to retire effective January 1, 2013. Richard Alexander of Parallel's board will assume the role of
interim CEO, until a permanent replacement is announced, targeted for the end of Q1/13. The transition comes after a
difficult 18 months for the company post IPO and on the announcement of its distribution reduction, but is at a point
where Parallel appears to be achieving more consistency in its operations, which could offer inflection from its current
trading levels.
PAG Equity: While the analyst’s forecast upside looks attractive and the near-term uncertainty has lifted, we do not
recommend buying PLT.un until we see a clear track record of better operational performance. Our energy
recommendations remain focused on higher quality companies such as SU, CNQ, BTE for oil exposure and ARX, PEY,
and BNP for natural gas exposure.