TD research reportYangarra Resources Ltd. (YGR-T) C$4.70 Initiating Coverage of Yangarra Resources at BUY
Event We are initiating coverage on Yangarra with a BUY rating and $7.00 target price. The full initiation report will be published shortly.
Unrivalled Growth Profile — Yangarra has grown production per share at a threeyear CAGR of 35%, and we expect a 51% growth CAGR to Q4/19, which would lead all companies under coverage by a wide margin (next highest is 33%).
Bioturbated Cardium Leader & Innovator — In addition to acting as one of the pioneers in the play, Yangarra has continued to push drilling and completion boundaries, which we believe are on the third distinct generation. As per corporate disclosures, these efforts have increased initial productivity (IP30) by 25%.
Concentrated Pure-play — Despite having quadrupled in size over the past three years, we are comfortable that the asset base can still foster material growth. In our opinion, well results can still be highly impactful on the share price, and we see continued good news on this front. We also view industry's increasing focus on the play as an indication that Yangarra is a viable takeout target — despite a somewhat difficult M&A market for junior producers.
Under-appreciated Focus on Costs — Management's experience in the field and at the consulting level is, in our view, materializing in a very competitive revenue and cost structure (we estimate a $9.12/BOE advantage). We forecast a 2018E operating netback of $29.29/BOE, reflecting favourable operating and infrastructure costs.
Attractive Valuation — Despite what we view as a strong asset base, prolific growth outlook, and financial means with which to facilitate this growth, Yangarra is trading at a material discount to its peers (3.6x vs. 5.1x 2019E EV/DACF).
TD Investment Conclusion In our opinion,
Yangarra is an exciting pure-play producer that has established itself as a leader in the emerging bioturbated Cardium play. The company has posted industry-leading growth rates, without relying on acquisitions, that we forecast will continue through 2019. This growth and innovation is coupled with a top-tier cost structure, a disciplined focus on returns, and a sound financial position. This combination of strong qualities, matched with the unique pure-play exposure to such a promising emerging play, drives our constructive thesis and BUY rating.