VET DOWNGRADED to $25: BMOIts funny how members on this board selective quote the SAME Globe and Mail article that could be viewed as a "positive" but rating but neglet to post the "negative" ratings such as BMOs. I will post the entire article.
While the 2023 production guidance from Vermilion Energy Inc. (
) fell below his expectation “amid a larger capital spend,” Desjardins Securities analyst Chris MacCulloch thinks investors “may appreciate the improved clarity on capital returns as VET navigates an extremely volatile commodity price environment.”
Before the bell on Friday, the Calgary-based company revealed a capital budget for the year of $570-million, higher than the analyst’s $500-million estimate, with “relatively modest” production growth from 2022 levels of 87,000–91,000 barrels of oil equivalent per day. That was also below Mr. MacCulloch’s forecast (97,500 boe/d).
“The primary driver of lower volumes is recent permitting in the BC Montney facilitating the construction of infrastructure to optimize and shift development from Alberta, which will delay the planned ~5,000 boe/d production ramp at Mica until 2024,” he said. “The company has also scheduled a plant turnaround at Corrib in mid-2023, which is expected to result in a 1,000 boe/d annual production hit.
“Meanwhile, VET has received formal consent from the Irish government for the previously announced consolidation of Corrib, which is now expected to close at the end of 1Q23, consistent with our modelling assumption. The planned maintenance at Corrib should help optimize volumes to mitigate EU windfall taxes which Ireland has set at a highly punitive 75-per-cent tax rate, significantly above the EU minimum of 33 per cent. For context, VET now expects to pay $250-milllion of windfall taxes in 2022 (vs a previous estimate of $300-million) and $300-million in 2023 (from $400-million) based on current strip prices; the latter primarily reflects the recent collapse in European natural gas prices. However, given the improved clarity on windfall taxes, the company has increased its quarterly base dividend to 10 cents per share (from 8 cents per share) while announcing plans to resume share buybacks, which are still expected to be the primary method of returning capital to shareholders.”
Maintaining a “buy” recommendation for Vermilion shares, Mr. MacCulloch trimmed his target to $35 from $38. The average target is $38.21.
“Our revised $35 target implies 3.5 times EV/DACF (2023E), which is significantly below the stock’s historical consensus multiple of 4.8 times,” he noted.
Elsewhere, others making target adjustments include:
* Scotia Capital’s Jason Bouvier to $32 from $40 with a “sector perform” rating.
“OUR TAKE: Negative,” said Mr. Bouvier. “Our FCF estimate (strip) in 2023 is down by 42 per cent (down 33 per cent in 2024). About 60 per cent is due to our inclusion of the windfall profits tax (previously not included), while the remaining 40 per cent is due to lower production, increased cash taxes, opex, transportation, G&A, and higher capex. We are not modeling the windfall profits tax beyond 2023, although if European gas prices remain high, the risk remains.”
* BMO’s Mike Murphy to $25 from $32 with a “market perform” rating.
“Although 2023 spending was in line with consensus, production volumes were considerably lower than expectations. The dividend was increased 25 per cent, however we expect debt reduction to remain the focus for free cash flow in the near term. With softer European gas prices and windfall tax headwinds, we are lowering our target price,” said Mr. Murphy.
* TD Securities’ Menno Hulshof to $35 from $38 with a “buy” rating.