Spyglass Resources Corp SGLRF

Details from TD Report.

[hawk35]

Below is a cut an paste from the TD report that explains why the target price is 1.50.


33% cut to the monthly dividend should free up $11mm in annualized cash flow.
The dividend reduction to $0.18 annually (from $0.27) may arguably have been anticipated by the market given a relatively high yield prior to announcement (16%). That said, the stock has traded up over the past day and a half, which again suggests that investors believe this to be the right choice. However, we still estimate a payout of 113% in 2015, which in our view does not leave much room to deliver the balance sheet absent a continued stream of asset sales.
 
In addition to industry risks, the key near-term risks specific to Spyglass include: 1) Net debt represents a meaningful proportion of the total enterprise and asset value, which increases the potential for volatility in the calculation of our target price; 2) the short corporate history and the number of consolidated entities could result in a higher margin of error in our forecasts; 3) operating costs are high, especially given the liquids/natural gas split; and 4) cash flow netbacks are relatively low compared with the peer group, which could affect the company’s ability to repay corporate debt and lead to greater volatility in reported financial results.
 
TD Investment Conclusion
Our view continues to be that debt and the current cost structure are two
meaningful challenges that Spyglass needs to overcome in order to increase
the flow of incremental investment dollars into the company. Unfortunately,
asset sales and the dividend cut alone are not likely sufficient to meaningfully
reduce leverage, compounded by operational challenges at the company's
marquee Dixonville Montney waterflood project. Our target drops to $1.50
(from $1.65) but we remain HOLD rated based on a 1% total return.