RBC capital markets PT 20.00?October 24, 2021 Cenovus Energy Inc.
Company description Cenovus emerged as Canada’s newest integrated oil company in December 2009, when it was spun-off from Encana Corporation and equipped with leading in-situ oil sands assets at Foster Creek-Christina Lake.
On January 1, 2021, Cenovus completed a transformative merger with Husky Energy under which the two entities combined in an all-stock transaction valued at $23.6 billion, inclusive of debt. The combined entity possesses production of circa 750,000 boe/d, with upgrading and refining capacity of around 660,000 bbl/d.
Investment summary We rate the common shares of Cenovus Energy Outperform.
• Merger with Husky. Cenovus Energy’s merger with Husky Energy is strategically sound in our eyes. On paper, the transaction fuses Husky’s diverse upstream/mid-stream/downstream operations with Cenovus’ bitumen-weighted upstream portfolio. Under one roof, Cenovus-Husky becomes a more balanced integrated oil company with increased cash flow diversification.
• Net Debt in Focus. Cenovus’ net debt stood at $12.4 billion as of June 30—down nearly $1 billion from the end of the first quarter. The company has line of sight to its $10 billion net debt target via organic free cash flow generation by year-end, opening the door to incremental shareholder returns, including share repurchases. On its conference call, Cenovus noted that asset sales through the balance of the year could accelerate this process. The company divested assets in the East Clearwater and Kaybob areas (circa 12,000 boe/d of production) in June/July for about $110 million, adding to its earlier $102 million sale of its Marten Hills gross overriding royalty.
• Top Tier In-Situ Matters. Cenovus’ Christina Lake in-situ SAGD operations have the lowest steam-oil ratio (SOR) industry wide, with Foster Creek not far behind
Outperform TSX: CVE; CAD 14.75; NYSE: CVE Price Target CAD 20.00
Key Statistics Shares O/S (MM): 2,017.6 Dividend: 0.07 NAVPS: 23.11 Market Cap (MM): 29,760 Yield: 0.5% P/NAVPS: 0.64x Avg. Daily Volume: 14,800,250
RBC Estimates FY Dec 2019A 2020A 2021E 2022E CFPS Diluted 3.03 0.12 3.79 5.62 P/CFPS 4.9x NM 3.9x 2.6x EPS, Ops Diluted 0.37 (2.12) 1.18 2.86 P/E 39.9x NM 12.5x 5.2x Oil (mbbl/d) 380.9 408.5 634.8 648.4 Gas (mmcf/d) 424.8 378.9 864.9 822.8 Prod. (mboe/d) 452 472 779 786 All values in CAD unless otherwise noted