Veren Inc T.VRN

From RBC Price taget increased to $6.50 from $3.75

[Al42]

EQUITY RESEARCHRBC Dominion Securities Inc.Michael Harvey, P.Eng. (Analyst)[phone] Ledzion, CFA (Associate)[phone] PerformTSX: CPG; CAD 4.18Price Target CAD 6.50 ↑ 3.75WHAT'S INSIDE Rating/Risk Change Price Target Change In-Depth Report Est. Change Preview News AnalysisScenario Analysis*DownsideScenario2.5040%CurrentPrice4.18PriceTarget6.5056%UpsideScenario9.00116%*Implied Total ReturnsKey StatisticsShares O/S (MM):534.6Dividend:0.01Float (MM):389.9Market Cap (MM):2,235Yield:0.2%Avg. Daily Volume:10,388,320RBC EstimatesFY Dec2019A2020E2021E2022ECFPS Diluted3.351.611.932.40Prev.1.672.09P/CFPS1.2x2.6x2.2x1.7xOil (mbbl/d)147.0109.9116.8117.9Prev.98.896.4Gas (mmcf/d)91.667.6101.7103.8Prev.61.255.5Prod (boe/d)162,230121,210133,749135,190Prev.109,000105,624All values in CAD unless otherwise noted.February 18, 2021Crescent Point Energy Corp.Going West - Duvernay Deal Opens a New ChapterOur view: CPG's acquisition of Shell's Duvernay assets is attractivelypriced, improves FCF metrics, and adds meaningful runway to thecompany's E&D portfolio (which had previously been an investor focalpoint). We therefore view the deal favorably - with our target priceincreased to $6.50/share.Key points:•Transaction summary - going West. CPG will acquire Shell's Duvernayportfolio for a total consideration of $900mm, comprised of $700mmin cash plus 50mm CPG shares; Shell will then hold roughly 9% of CPGshares outstanding. As historically a Saskatchewan oil producer, thistransaction maps a departure from the company's roots - and opens thedoor to a new growth area. Metrics of $30,000/boe/d and ~3x CF areattractive in our minds - and accrete to current trading multiples.•Asset summary - filling big shoes. CPG acquires all of Shell's KaybobDuvernay assets, which includes ~30 mboe/d (35% gas), 500 netsections of land (Ex 3), 200 identified drilling locations and access toa variety of third-party facilities. Mineral rights acquired are primarilyDuvernay, though Montney are in place on a small 'fringe' portion.Duvernay wells in this region feature a capital cost of ~$10mm full cycle,recovery of 750 mboe per well, and break even at roughly US$40-45/bbl, by our estimates.•Development plans - drill to fill. Development plans at Kaybob arelargely 'drill to fill' for now - with ~18 wells per year - or ~$180mm ininvestment - required to stabilize the production base (10 wells in 2021reflective of the partial year). Over time a key point will be optimizationof D&C operations - with a view to honing the play's capital costs andoverall efficiencies. Our 2022 outlook incorporates a capital figure of ~$870mm - structured to maintain volumes of ~135 mboe/d across theportfolio.•FInancial impact - accretive on key metrics. The transaction is accretiveon key metrics aided by a large cash component, with our 2022E CFPSestimate increasing by 15% and CPG's FCF yield increasing to 22%(19% previously) as detailed in Ex1. In addition, the company's balancesheet improves at year end 2022 - with leverage mapping to now 1.3x(previously 1.4x) at the RBC deck. Overall this is an easy deal to like- though we do expect some inevitable speed bumps as the companyshifts to a brand new - and more capital intense area of the portfolio.•Target price to $6.50/share. We view the transaction favorably, with ourtarget moving to $6.50 reflective of our constructive view and increasedestimates. Our updated estimates now indicate CPG sporting a 2022 EV/DACF multiple of 2.8x - which we foresee expanding closer to the group'saverage valuation of 3.6x.