November 4, 2022
Enerplus Corporation Outstanding Performance
Our view: Enerplus remains our favorite intermediate producer given its capable leadership team, solid execution, strong balance sheet and rising shareholder returns. We are reaffirming an Outperform rating on Enerplus and boosting our one-year target price by $1 (5%) to $20 per share. Enerplus is on our Global Energy Best Ideas list.
Key points:
3Q Results. Enerplus Corporation delivered impressive third-quarter results amid 20% sequential oil & liquids production growth and free cash flow generation of $241 million. This performance reflects better than expected well productivity in North Dakota and comes despite non-core asset sales in Canada. The company repurchased $112 million (7.9 million) of its common shares in the third quarter and announced a 10% increase in its common share dividend to an annualized rate of $0.22 per share (1.2% current yield).
Shareholder Returns. Enerplus reaffirmed its commitment to distribute a minimum of $425 million of shareholder returns this year and at least 60% of free cash flow into 2023 with an accent on share buybacks. Execution of a substantial issuer bid (SIB) also remains an option for Enerplus should market conditions dictate, but the company appears comfortable with the flexibility afforded by an NCIB. Our outlook for Enerplus factors in share repurchases of $384 million in 2022 and $395 million in 2023.
2022 Guidance. Enerplus raised its mid-point 2022 production outlook by 1% (875 boe/d) to 100,375 boe/d (despite additional dispositions) and refined its capital program to $430 million ($400-$440 million range previously). The company also increased its Bakken crude oil price differential guidance for 2022 to $1.25/bbl above WTI ($1.00/bbl above WTI previously). Bakken oil (in basin) is currently receiving a $2-$3 premium to WTI.
Strong FCF Profile. We peg Enerplus’ free cash flow (before dividends and excluding A&D) at approximately $795 million in 2022 ($95 WTI, $6.63 Henry Hub) and $784 million in 2023 (US$91 WTI, $4.87 Henry Hub).
Relative Valuation. Enerplus is trading at a debt-adjusted cash flow multiple of 3.5x in 2022E (vs. our Canadian intermediate peer group avg. of 3.8x) and 2.8x in 2023E (vs. peers at 2.4x) and a free cash flow yield of 20% in 2022E (vs. peers at 20%) and 21% in 2023E (vs. peers at 31%). We believe the company should trade at an above average multiple given its consistent operating performance, capable leadership team and strong balance sheet, partly off-set by portfolio concentration.