From this Morning upgrade and downgrade and Nat GasVery nice comments and anslysis on Nat Gas and price..
And stock to watch
Canaccord Genuity analyst Anthony Petrucci thinks the risk/reward proposition for natural gas weighted stocks “appears extremely compelling at current levels.”
“While natural gas pricing got up off the mat in Canada in 2020, the upward move through 2021 has been much more extreme,” he said. “After five years of averaging close to $2.00 per thousand cubic feet, the spot price Monday closed at over $4.50/mcf, with winter gas pricing on the strip north of $5.00/mcf. Strong demand in Canada and throughout North America (and record external flows through LNG), combined with a very limited supply response, have domestic pricing poised to continue to show strength, in our view. A look over to Europe, where natural gas prices are now topping US$20/mcf provides a jarring example (albeit extreme) for the potential of natural gas pricing when the supply/demand balance fails to normalize.”
In a research report released Wednesday, he analyzed the sensitivity of exploration & production (E&P) companies in his coverage universe to natural gas pricing, leading him to conclude “life at $3.50/mcf is pretty good.”
“Despite share price strength in 2021, valuations remain at favourable levels at $3.50/mcf AECO,” said Mr. Petrucci. “On average, gas-weighted stocks in our coverage universe are trading at just 2.7 times EV/DACF [enterprise value to debt-adjusted cash flow], with an average D/CF of 0.8 times. Additionally, most gas-weighted equities are trading at just a fraction of their NAV. We highlight both ARX and KEL as names with both below-average cash flow multiples and negligible debt levels. We also highlight TOU as the largest natural gas producer in Canada, trading at an attractive 3.1 times, again with limited debt.
“Even at $2.50/mcf, we do not view natural gas weighted stocks as overvalued, with most trading between 3.0 times to 4.0 times EV/DACF. Importantly, balance sheets remain fairly resilient at these levels, with D/CF averaging just 1.0x. We also note that NAV support remains robust at that level, as strength in the oil price mutes the impact of lower gas prices. For those investors looking for gas exposure, but are wary of a correction, we recommend royalty player TPZ, and those with a healthy liquids weightings, including ARX and KEL.”
Mr. Petrucci made a series of target price adjustments to stocks he covers. They are:
- ARC Resources Ltd. (
, “buy”) to $16 from $15. The average on the Street is $14.35. - Birchcliff Energy Ltd. (
, “buy”)8 from $ to $6.50. Average: $6.96. - Kelt Exploration Ltd. (
, “buy”) to $5.50 from $4.75. Average: $5.23. - Nuvista Energy Ltd. (
, “hold”) to $4.50 from $4. Average: $5.09. - Peyto Exploration & Development Corp. (
, “buy”) to $10.50 from $9.50. Average: $9.71. - Pine Cliff Energy Ltd. (
, “speculative buy”) to 70 cents from 55 cents. Average: 61 cents. - Tourmaline Oil Corp. (
, “buy”) to $47.50 from $40. Average: $47.30
“For exposure, it is hard to look past Tourmaline, given its scale, track record and reasonable valuation. We recommend PEY and BIR for those looking for a bit more torque, while ARX, KEL, CR and TPZ provide more balanced exposure given their higher liquids weightings or royalty/infrastructure assets. At over 90% natural gas by production, PNE offers the greatest exposure to rising natural gas prices,” he said.
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