Canaccord on CLL. Target: C$0.00
Cassie Chan 1.403.508.3837
cassiechan@canaccordgenuity.com
CLL : TSX : C$0.16
SELL ? Target: C$0.00 ?
EARNINGS SUMMARY:
FYE: Dec 2011A 2012A 2013E 2014E
EPS diluted (clean): (0.26) (0.19) (0.28) (0.18)
CFPS diluted: 0.10 0.09 (0.16) 0.01
We are maintaining our SELL rating after CLL’s reported Q4/12 results.
It was an uneventful release as expected, and our view of the story
remains unchanged.
The company faces the possibility of exceeding its
financial limits in 2014 if production and realized bitumen pricing do
not improve significantly. In our view, the chances of equity holders
salvaging much, if any, value, even if an acquirer or a JV partner is
found, continues to be highly unlikely. Our target price reflects this.
Of note, Connacher's 8.75% and 8.5% notes are trading at $65.75 and
$67.125, respectively.
Q4/12 results in line with our expectations. Average production came in
at 11,945 bb/d compared to the 11,720 bbl/d indicated on GeoScout.
Reported EBITDA of $11.2mm was slightly below (6%) our $11.9mm
estimate. Realized bitumen price of $41.55/bbl was fairly consistent with
our $42.42/bbl estimate. Transportation costs were reported to be
$17.91/bbl, which was higher than our forecasted $15.00/bbl (we had
suspected we may have been light).
More importantly, in our view, is that this confirms that the recent increasing transportation cost is due to
the increased dilbit by rail strategy and is a new level of expense to be expected going forward.
We continue to expect CLL to reach its financial limits in 2014. In Figure
1, we show our estimated forecast of Connacher’s financial liquidity in
2013 and 2014.
CLL exited 2012 with almost $210mm in financial
capacity ($112mm w/c surplus and $95mm LOC). After this year’s
~$95mm capital budget, the company will have to continue to support
its almost $80mm in annual interest payments and cover at least its
sustaining capital going forward (which we estimate to be ~$30mm in
2014).
Key variables to our analysis are expected production expected,
which remains to be seen how much improvement will be realized from
CLL’s “fill the plants” capital spending (management indicated that
production can be improved by up to 5 mbbl/d over 18 to 24 months),
and realized bitumen pricing, which is a key unknown with CLL being
tight lipped about its dilbit by rail arrangement.