RE:RE:RE:What do you think....From the Globe this morning
https://www.theglobeandmail.com/investing/markets/inside-the-market/article-fridays-analyst-upgrades-and-downgrades-223/
Scotia Capital analyst Jason Bouvier lowered his recommendation for Vermilion Energy Inc. (
) on Friday, warning of the drawbacks from a potential windfall tax in the European Union.
The proposal will be voted on Sept. 30 and allow each member state to enact its own tax.
“Our understanding of the windfall profits tax is that it is based on the profitability of the producer from 2019 to 2021, plus 20 per cent,” said Mr. Bouvier. “Then any profits above that level (i.e., windfall profits) would pay a tax of 33 per cent. Currently, the proposed tax will only apply to windfall profits in 2022.
“VET has acquired assets in Europe over the past few years, so we are using our 2023 estimates as a proxy of what those assets would have earned in 2019-2021. However, we are using the average European commodity prices over the 2019-2021 period (TTF of $10/mcf and Brent of $71/bbl). This suggests a normalized European taxable income of $176-million per year. Adding 20 per cent suggests $211-million for a rough level of base profits.”
Mr. Bouvier estimates the tax could impact Vermilion’s 2022 cash flow by 3-6 per cent, assuming use of tax pools and hedging losses.
“We believe, even if the windfall tax is enacted, that VET will continue to meet its balance sheet targets and funnel excess FCF to shareholders (i.e., increasing shareholder returns),” he said. “However, in our view, this is an incremental risk to the stock and given the company’s recent outperformance (24 per cent over past 3 months vs the XEG).”
Based on that view, he lowered the Calgary-based company to “sector perform” from “sector outperform” with a $40 target (unchanged). The average is $41.57.