Today's G&M (RBC) RBC Capital Markets analyst Luke Davis assessed value in the small- and mid-cap energy producer sector and provided top picks,
“We have detailed the components of our net asset value (NAV) estimates for our coverage universe and provided sensitivities to changes in commodity prices, alongside our view of what the market is currently pricing in. While investors remain focused on near-term cash generation and return of capital, we have fielded more investor inquiries recently relating to asset value and NAV, which we see as rational, particularly as the conversation shifts toward ESG and energy security. Based on our current estimates, we believe the broader group is pricing in roughly US$65/bbl WTI on a long-term basis, suggesting incremental upside potential in the context of prevailing oil prices .. Despite recent commodity-driven volatility, we believe the sector remains undervalued with the industry in a better financial position that at any other point historically, with most SMID cap producers expected to be near debt-free into 2023… We continue to recommend producers that have high-quality asset bases, experienced management teams, strong financial positioning, and critical mass in highly economic resource plays. Our favourite Outperform-rated stocks are ARC Resources (ARX), Freehold Royalties (FRU), Headwater Exploration (HWX), Tamarack Valley Energy (TVE), and Tourmaline Oil (TOU).