From DesjardinsNuVista Energy Ltd.
Chris MacCulloch, CFA • (403) 532-6617 • chris.macculloch@desjardins.com Tyler Axani, CFA, Associate • (403) 532-6621 • tyler.axani@desjardins.com Taylor Kent, Associate • (403) 305-3484 • taylor.kent@desjardins.com
Meet the new and improved NuVista...but wait, there’s more!
The Desjardins Takeaway
We are updating our estimates and reiterating our Buy thesis on NuVista following its 4Q22 financial results which met expectations. The combination of rapid resource development and accelerating share buybacks have resulted in the company sporting a PPS CAGR of 21%, among the best in class within the Desjardins E&P coverage universe. Meanwhile, the company is also building a large cash position that could eventually be deployed toward M&A opportunities, including potential infrastructure repurchases.
Highlights
Meet the new and improved NuVista...but wait, there’s more! NVA officially closed the books on a year of rapid growth in 2022 after advancing PPS by 31% (inclusive of share buybacks). Given the natural temptation to accelerate production growth from highly economic Montney plays, it was nice to see the company stick to its three-rig drilling program last year, choosing instead to focus on protecting capital efficiencies. And the results speak for themselves: NVA managed to keep inflationary pressures reasonably well-contained at ~10% last year, which management believes could roll over below 5% in 2023, under the right conditions. Despite the recent collapse in natural gas prices, there are no signs of a potential shift in strategy, with the company reaffirming plans to ramp up production to 100,000–105,000 boe/d once additional infrastructure debottlenecking is completed over the next few years. Meanwhile, investors are poised to continue benefiting from a flood of share buybacks in 2023. Recall that NVA is now returning 75% of discretionary FCF to shareholders; based on current strip prices, the company could allocate upward of C$275m toward share repurchases this year, keeping it on pace to exhaust the remainder of its current NCIB—and make a considerable dent in the next one. That said, management also appears to be exploring the potential introduction of a modest dividend later this year, which in our view would be a natural evolution for the story as organic growth rates gradually mature. We also would not rule out opportunistic M&A, particularly with respect to infrastructure repurchases, which could further improve corporate sustainability through reduced cost structures.
Valuation
Our C$17.50 target implies an EV/DACF (2024E) multiple of 3.5x, which is slightly below the stock’s historical consensus multiple of 3.8x. Recommendation We maintain our Buy rating.