Scotia Capital Initiate CoverageShould be the first of many to come. GLTA
Calling it a “countercyclical growth opportunity,” Scotia Capital analyst Cameron Bean initiated coverage of Logan Energy Corp. with a “sector outperform” recommendation on Wednesday, touting its management’s “track record of value creation in the small cap growth space.”
The Calgary-based company began trading on the TSX Venture Exchange on Tuesday following the spin-out of the early stage Montney assets of Spartan Delta Corp.
“Logan is a Canadian-listed small cap oil and gas producer led by key former team members of Spartan Delta Corp. (Spartan Delta; SDE-T; rated Sector Outperform), from which Logan was spun out,” he said. “The company is advancing an oil- and liquids-focused production growth and asset advancement strategy reminiscent of the classic junior exploration and production (E&P) model (high growth through outspending cash flow).
“We believe Logan is well positioned to pursue this strategy and create value for investors. Our thesis and recommendation are based on Logan’s (1) proven management team; (2) timely, countercyclical strategy of advancing an underappreciated Montney asset base at the same time as long-term players and recent entrants compete for a shrinking pool of available assets; and (3) strong potential for asset base advancement through the application of modern drilling and completion technology.”
Currently the lone analyst covering Logan, Mr. Bean set a target of $1.65 per share.
“In our view, the multi-year reduction in upstream oil and gas investment (particularly exploration investment) and hollowing out of the junior E&P sector point to a potentially advantageous environment for a well-capitalized junior company such as Logan,” he said. “We believe the company’s plan to advance and grow its underappreciated Montney asset base is well timed and could yield strong returns for investors. We expect consolidation to continue in the Montney and expect asset valuations to increase as long-term players and recent entrants (including three notable new entrants in the last 16 months) compete for a diminishing pool of available assets. Importantly, Montney asset valuations have materially increased over the last three years, with Spartan Delta’s recent asset sale yielding $7,300/acre, or $55,000/boe/d [barrels of oil equivalent per day] versus the Q3/20 Kelt Exploration Ltd. Inga asset sale at $3,600/acre, or $36,000/boe/d. Based on precedent transactions, we estimate the market value of Logan’s asset at $1.20/share, with a line of sight beyond $2.00/share if the company successfully executes its plans.”