Analyst imitiates coverage... While the Canadian energy sector has outperformed the rest of the TSX by “a decent margin” thus far in 2022, ATB Capital Markets analyst Amir Arif sees “further upside ahead for the group given valuations remain attractive, free cash flow yields remain in the double digits, and the industry is showing capex discipline and returning capital to shareholders.”
“We believe that the small/mid-cap space offers some attractive opportunities,” he said. In a research report released Thursday, he initiated coverage of Surge, with an “outperform” rating and $15 target. The average $16.64.
“We believe that SGY’s monthly dividend is well covered from both a coverage and duration perspective,” said Mr. Arif. “We expect cash flow after maintenance capex to cover the dividend down to US$61 WTI, providing a good coverage ratio. Additionally, with 13 years of identified drilling inventory to hold production flat and additional upside from waterfloods, the visibility on the duration of the dividend is well over a decade. With a focus on modest production growth, Surge should also generate free cash flow after dividends, which further adds equity value through debt reductions initially and through potential dividend increases, special dividends, share buybacks, or accretive acquisitions down the road. "