Crescent Point Energy Corp.Q2/18 Recap: Transition Quarter
Our Conclusion
With the stock once again materially underperforming on the back of earnings, the market clearly remains focused on Crescent Point's capital discipline. This quarter brought a modest capex overspend relative to expectations, along with a "reshuffling" of capital expenditures over the balance of 2018, the result of which sees production guidance fall 2% (to 177,000 Boe/d), on unchanged spending. While the optics of a guidance cut are not great, we are prepared to give the reconstituted management team the benefit of the doubt as the ongoing strategy refresh takes shape.
We remain Neutral rated on Crescent Point for the time being, pending finalization of the CEO search and strategic review in the fall.
What's The Event?
Despite a $13.5MM cash severance charge, CFPS of $0.91 came in 10% ahead of our $0.83 estimate, which was net of a $30MM severance expense. Most of the remainder of the variance relative to our estimates was a smaller-than-expected loss on hedging activities, which has led us to model these differently going forward. Realized pricing was also 3% ahead of our expectations, while other major line items were largely in line. Net debt at the end of Q2 was $4.0B, down from $4.4B at the end of last quarter.
What's Changed?
We have made minor changes to our estimates in the wake of Crescent Point's Q2/18 results. Cuts to our H2/18 production forecast are offset in cash flow by a paring of hedging losses. We now see cash flow totalling $2.1B this year, which compares to development capex of $1.85B and implies a payout ratio of 100%. Although Crescent Point remains discounted on our 2019 valuation at 3.8x EV/DACF, we believe the market will need to see improvement on debt-adjusted growth metrics if the stock is going to narrow the gap relative to the peer group.