Guidance Update. The company’s updated 2023 outlook pointed toward 2% (20,000 boe/d) lower production of 790,000-810,000 boe/d amid an unchanged capital program of $4.0-$4.5 billion. The company now pegs its downstream throughput rates at 480,000-500,000 bbl/d (down 7.5%) in its US manufacturing segment.
Free Cash Flow. We peg Cenovus’ free cash flow (before working capital movements, base dividends and including A&D) at approximately $6.1 billion in 2023 under our base outlook (US$84 WTI, US$18.19 WCS-WTI, US $29 NYH 3-2-1). Under 2023 futures pricing (US$77 WTI, US$17.46 WCS- WTI, US$29 NYH 3-2-1), we peg the company’s free cash flow at $4.8 billion.
Relative Valuation. At current levels, Cenovus is trading at a 2023 debt- adjusted cash flow multiple of 3.8x (vs. our Canadian major peer group avg. of 4.6x), and a free cash flow yield of 16% (vs. our peer group at 17%). In our minds, Cenovus should trade at an average/above average multiple vis-a- vis our peer group, reflective of its capable leadership team, strengthened balance sheet, operating performance and bolstered shareholder returns, partially off-set by its still fractionalized downstream portfolio.