Surge Energy Inc (Alberta) T.SGY

VTC Research - Surge Energy - Initiating Coverage

[Chimester]

https://research.velocitytrade.com/web_view_1500_65.html

 

Velocity Trade Capital Research Commentary
March 1, 2021

 

Surge Energy Inc.

GOING FROM SURVIVING TO THRIVING

• Surge offers high exposure to rising crude oil prices, especially in 2022 and beyond
• We are forecasting both production growth and strong free cash flow in 2022
• Debt reduction a large catalyst for unlocking strong underlying value

After battening down the hatches in 2020, Surge is positioning itself to ride the upside of recovering oil prices.  A significant hedge book to protect the balance sheet and capital program limits the full exposure to the recovery in 2021, but is expected to provide some debt repayment as well as positioning the company to increase production momentum heading into 2021, while also increasing leverage to its higher return Sparky asset base.   This should set the stage for strong free cash flow generation in 2022, with the ensuing debt reduction being one of the strongest catalysts for share price appreciation. We are initiating coverage with an Outperform rating and a target of $1.00, which represents a 3.7x EV/EBITDA multiple based on our 2022 forecast. 

 

 

Velocity Trade Capital Research Commentary
March 1, 2021

 

Surge Energy Inc.

GOING FROM SURVIVING TO THRIVING

• Surge offers high exposure to rising crude oil prices, especially in 2022 and beyond
• We are forecasting both production growth and strong free cash flow in 2022
• Debt reduction a large catalyst for unlocking strong underlying value

After battening down the hatches in 2020, Surge is positioning itself to ride the upside of recovering oil prices.  A significant hedge book to protect the balance sheet and capital program limits the full exposure to the recovery in 2021, but is expected to provide some debt repayment as well as positioning the company to increase production momentum heading into 2021, while also increasing leverage to its higher return Sparky asset base.   This should set the stage for strong free cash flow generation in 2022, with the ensuing debt reduction being one of the strongest catalysts for share price appreciation. We are initiating coverage with an Outperform rating and a target of $1.00, which represents a 3.7x EV/EBITDA multiple based on our 2022 forecast.