cibc analyst: Price Target (12-18 mos.): C$15.50Q1/22 Results: In-line Quarter With A Modest Cash Flow Beat
Our Conclusion
Peyto had pre-released most of its metrics ahead of the quarter, so we saw no surprises there, but cash flow did come in ahead of expectations thanks to strong realized gas pricing in the quarter. Keeping its rig crews active through spring breakup is unusual, but necessary in order to retain experienced personnel. As a result, the company expects its 2022 capital program to be accelerated and hinted at potential capex increases later in the year, which could bring Street capex estimates higher. We believe an in-line quarter was priced in given the pre-released information; therefore, we take this update as neutral for the stock.
Key Points
Headline metrics were pre-released with no surprises and a cash flow beat. Production of 101.5 MBoe/d (12% liquids versus us at 10% liquids) and capital of $165MM were pre-released, while cash flow of $1.17/sh beat Street estimates of $1.14/sh and us at $1.11/sh. Realized gas pricing in the quarter was $5.25/Mcf versus our estimate of $4.18/Mcf, but was offset by costs which were 6% higher than our estimates.
Sustained activity through breakup will accelerate capital spending for the year. Peyto has five rigs running, with eight wells currently drilled and awaiting tie in. The company is keeping four rigs working through spring breakup to keep the crews active and available. This is likely to chew through the company’s capital program faster than anticipated. As a result, management suggested that the capital budget could be increased later in the year, but this could be accompanied by additional production. The company previously guided $350MM-$400MM for the year and consensus estimates are currently at $395MM, so we would suggest an increase in capex could fall above the top end of guidance.
Chambers outperforming capacity expectations. The new plant is currently processing 65 MMcf/d of gas versus a nameplate capacity of 50 MMcf/d. The company is assessing plans for expansion of the plant given the level of drilling activity in the area, which could also contribute to incremental capital spending in the year.
Price Target Calculation
Our 12- to 18-month price target of $15.50 is based on a target 2022E EV/DACF multiple of 2.7x on strip pricing. We estimate strip net debt of $534MM in 2022E.