From RBC Tonight Investment summary
We rate Cardinal Energy shares Outperform with an $8.00 price target.
• Staying power: Cardinal's staying power comes from its best-in-class sub-15% decline rate. The low decline rate allows for a sub-100% all-in payout ratio in 2018E and FCF optionality to drill, acquire, or increase its dividend in a normalized commodity environment.
• Experienced leadership team: Management's extensive track record includes the sale of five growth-oriented E&Ps, all delivering positive returns. This time, Cardinal's game plan revolves around decline-rate management and accretive acquisitions to grow production and dividends.
• Attractive upside: We believe attractive upside exists in Cardinal's core areas including: 130-well development inventory in a Glauconitic tight oil play, valued at $1.15/ share on an unrisked basis, 70 unbooked Mitsue locations for $2.16/share unrisked, plus 320 unbooked Midale and House Mountain locations at $4.26/share unrisked.
• Strong financial outlook: We project Cardinal to be $205 million drawn on its $325 million bank line at YE18, plus $50 million convertible debentures (5.5% coupon, maturing Dec 2020 with a $10.50 conversion price), which maps to net-debt-to-trailing-cash-flow ratio of 1.9x. Potential royalty sales on recently acquired assets represents a de-leveraging catalyst to our estimates.
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They see potential upside to shareprice with the royalty sale and see a case for $10 as a target price.