ScotiaLatest Research (November 30, 2021): OUR TAKE: Positive.
Vermilion (VET) announced it has entered into an agreement to acquire Equinor's 36.5% interest in the Corrib (Ireland) natural gas field that should help to materially increase FCF and accelerate its deleveraging priorities. The proposed US$434M ($556M) acquisition is expected to close during 2H/22 (we assume Q4/22E contribution), with an effective date of January 1, 2022, that will significantly reduce VET's cash outlay at close to a manageable $200M-$300M. Further, the delayed payment allows VET to continue to direct FCF toward debt reduction and reinstate a $0.06 quarterly dividend (2% annual yield) for Q1/22. The acquisition will increase VET's working interest to 56.5% vs. 20%, while further increasing its exposure to European gas prices (see Exhibit 1). Reflecting our late Q3/22E close, we see the deal as 7% accretive to 2022E CFPS, 19% accretive to 2023E and 11% to our Base 2P NAVPS.
We maintain our Sector Perform rating on Vermilion, but have raised our one-year target price to $16.00 (vs. $15.00) per share, based on our revised Risked NAVPS of $15.89 (vs. $14.59).