Spartan Delta Corp.
(SDE-T) C$15.82
Spartan Delta Explores Strategic Alternatives Process
Event
Announces Strategic Alternatives Process and 2023 Guidance
Impact: SLIGHTLY POSITIVE
Looking to Unlock Value Through Strategic Repositioning Process: Spartan announced that it has initiated a process to review strategic alternatives to enhance shareholder value. While a corporate sale is on the table, Spartan stated this could include other value enhancing efforts including mergers, the sale of specific assets/ royalties, or the spin-out of assets to a newly-formed company.
Our View:
-
With 2023E production of ~80 mBOE/d, this iteration of Spartan is significantly larger than the previous entities that were ultimately sold. Given management's history of building and selling businesses, this process comes as little surprise.
-
Despite Spartan maturing into a sizable mid-cap with demonstrated field level execution, quality oil-rich Montney and Deep Basin assets, nearly debt-free balance sheet, and significant FCF, it trades at a modest discount to its gas- focused peers within our coverage universe. Regardless of the path taken, this process is likely to unlock incremental value. If the ultimate path is to run with the existing business, we highlight that Spartan does have the potential to return significant FCF to equity holders given its 17% 2023E FCF yield.
-
Given the location of the company's assets, we believe there will be competitive interest in some/all of Spartan's assets. For closeology, see Exhibit 1.
2023 Guidance Slightly Better Than We Had Expected: The 2023 capital budget was in line with our expectations; however, volume guidance was ~6% higher than we (and consensus) had anticipated with cash cost (opex/transport) expectations also better than we had modeled.
Our View: The one data point we had anticipated, but was not provided, was a return of capital strategy. Given the aforementioned strategic alternatives process announced this morning, we understand why it was omitted.
TD Investment Conclusion
Spartan offers significant y/y volume growth, exposure to high-impact, liquids-rich areas of the Montney and Deep Basin, FCF, and a potential positive outcome from the strategic alternatives process or a likely return of capital framework