Cibc on Q2
NUVISTA ENERGY LTD. Solid Q2/20 And Free Cash Flow Visibility Through H2/20 Appealing Our Conclusion NuVista nicely outpaced consensus estimates on production and cash flow this quarter. Management also reinstated guidance for the balance of 2020, targeting a relatively flat production level for the next six months, which we see as being largely expected. The companys robust H1/20 activity levels should also continue to provide a healthy backlog of DUCs to offset base declines for the balance of 2020 and into 2021, allowing NVA to dedicate excess cash flow towards debt reduction, which we see as being a prudent measure. We continue to favor the Montney exposure NVA offers, however, with some of NVAs larger peers screening as more attractively valued at current levels, we maintain our Neutral rating on the shares at this juncture. Key Points Headline metrics better than expected: Production of 50.9 Mboe/d was ahead of Street expectations and our estimate of 49.0 Mboe/d. Cash flow of $0.07/share was in line with our estimate ($0.07/share) and well ahead of consensus at $0.04/share. Capital spending of $21MM was in line with consensus at $20MM and ahead of our estimate ($15MM). We were modelling 36% liquids volumes through the quarter as we were anticipating modest curtailments, however, liquids comprised 39% of production, which is comparable to prior quarters. While NuVistas costs this quarter came in as expected, condensate and NGL price realizations were a bit lighter than we were modelling. We have amended our future price realizations as a result, which serves as a drag on our cash flow expectations for this year and next. Production guidance and capital spending levels are mostly aligned with consensus estimates at this point: NuVista is targeting production for H2/20 of 48-50 MBoe/d, which compares as being slightly under consensus estimates at ~51 MBoe/d presently. While this could be a slight drag on the shares, this team is also typically conservative with its guidance. Capital spending for H2/20 at $15MM-$25MM is as expected. Appealing free cash flow profile through H2/20 and attractive valuation offers an interesting juncture for the shares: The stock is interesting at these levels, with the shares trading at 4.1x our 2021E EV/DACF estimate on strip, which is below peers at 4.7x and well below the historical average for the stock. Operational catalysts can facilitate share price momentum, however, with NVA and its peers sponsoring modest H2/20 spending programs (rightfully), the number of operational catalysts are likely to remain subdued. Despite a number of alluring metrics and qualities at this juncture, we expect investor attention will remain concentrated on some of NVAs larger peers that also carry attractive metrics over the near term.