RE:RBC Outperform from 6.50 ---> 7.50 PTIf their plan really is to meaningly increase the dividend when they hit the debt-cash flow metric of 1.0, it seems like Q1 or Q2 2022 is when we can expect that based on this balance sheet forecast.
iownbmw545 wrote: June 10, 2021 Crescent Point Energy Corp.
Upgrading to Outperform alongside increased crude oil outlook Our view: We upgrade CPG shares to Outperform in tandem with today's RBC price deck revision, with our strategists increasing our Q3/21 crude oil outlook to US$75/bbl and pointing to average pricing of ~$72/bbl through 2022. Combined with a very high (27%) FCF yield and a very low (2.0x EV/ DACF) valuation at our updated deck plus improving operations, we see favourable risk/reward to CPG shares.
Key points:
• Upgrading CPG in tandem with RBC's increased crude oil pricing outlook. We have updated our commodity price outlook, which features WTI prices of US$68/bbl and US$72/bbl for 2021 and 2022, respectively. Henry Hub moves to $3.10 and $2.95 for the same timeline. For more details, see our Global Energy Research team’s note here. As a producer 87% weighted to liquids, crude oil pricing is a key driver of CPG's cash generation profile.
• Increasing estimates. We have incorporated our updated pricing outlook, under which 2022E CFPS increases by 12%. We adjust 2022 capital expenditures to $1,050 million (incl. $55 million of capitalized G&A, other) vs $905 million previously and our 2022E FCF estimate improves by 8%, now mapping to roughly $910 million or 27% FCF yield which is amongst the highest in the group.
• Key considerations. CPG continues to streamline its asset portfolio through non-core dispositions, while accretively adding new core areas (Kaybob acquisition). We are constructive on the positive rate of change within the business, including continued focus on cost control and improving sustainability. We expect CPG to generate material FCF allowing for rapid debt reduction, multiple dividend hikes and share repurchases (or further acquisitions).
• Non-core dispositions- improving sustainability. CPG has completed the disposition of its non-core SE Saskatchewan assets for cash proceeds of $93 million and reduction in associated ARO of approximately $220 million or 25% of CPG's ARO balance. Proceeds have been directed to the balance sheet and are incorporated within our updated estimates.
• Balance sheet. Based on our updated estimates, we forecast CPG to carry approximately $1.7 billion in net debt at year-end 2021 and $800 million in net debt at year-end 2022 representing D/CF ratio of 1.2x and 0.4x, respectively. We view debt reduction as the main use of FCF near-term, with slightly larger growth wedge and an increased dividend (effective Q4/21) incorporated into our forecast.
• Valuation. CPG currently trades at roughly 2.0x 2022E EV/DACF multiple vs peer average of 2.7x - a discount which we see narrowing over time driven by continued deleveraging, focus on cost control, enhanced returns of capital and evidence of successful execution in new plays. Our increased $7.50 target (up from $6.50) maps to 2.5x 2022E EV/DACF, as CPG closes its valuation gap to peers over time.