Event: Reinstates Competitive Dividend. Preliminary 2022 Guidance and 5-Year Plan.
Impact: POSITIVE
Increases Nominal Dividend to be Competitive With Peers: Earlier this morning, CPG announced it would increase its quarterly dividend to $0.03 (from prior dividend amount of $0.01/year). The first dividend at this level will be paid to shareholders of record on December 15th. We forecast this dividend equates to 4% of 2022E CF or 10% of 2022E FCF.
Our View: The new dividend level places CPG's current yield between its two large, non oil sands, Canadian, oil-weighted peers - Whitecap (WCP-T; 3.5%) and Enerplus (ERF-T; 2.0%). While the dividend increase is clearly a positive step, we can't help but look forward to the company's significant FCF and ultimately the potential for equity holders to see increased shareholder returns after CPG reaches its leverage target (<1x D/CF) by YE-2022E.
Specifically, we estimate that CPG will generate ~$730 million in FCF in 2022 (after sustaining capital), this equates to a FCF yield of 27% - significantly above its 2022E yield of ~3%. Preliminary 2022 Guidance as Expected. 5-Year Plan Mirrors 2022: The company introduced a preliminarily 2022 capital budget of $825-$900 million, which is guided to generate 131-135 mBOE/d. 2022 production guidance is approximately flat from TD's H2/2021E. The newly introduced 5-year plan essentially repeats the 2022 capital spending level to maintain flat production through 2026
Our View: 2022 guidance was as anticipated. Our prior estimate sat at the lowerend of the company's capital spending and production range. We have moved our 2022 spending assumption to the mid-point of guidance, which drives a modest upward revision to our production and CF forecasts (Exhibit 2).
TD Investment Conclusion: Crescent Point's 2022 guidance and 5-year plan articulates a strategy that maintains production and generates an immense amount of FCF under a flat US$65/bbl WTI pricing scenario. We encourage investors to revisit CPG as we believe it offers a strong conventional oil-weighted asset base, material FCF, comfortable leverage, a sustainable base dividend (with room to grow) and a very low valuation.
12 Month Price Target: C $9.00