TD action notes Event
Reports Q2 Results. Guidance Unchanged.
Impact: NEUTRAL
Production of 71.0 mBOE/d was in line with TD (71.0 mBOE/d) and Consensus (71.1 mBOE/d: As expected, Alberta wildfires curtailed production by 11 mBOE/d.
Volumes have now been restored and production capacity is currently 85 mBOE/d.
CFPS of $0.65 exceeded TO ($0.55) and Consensus (50.58). The beatwas primarily driven by a reversal of cash tax in Q1 and unexpectedly low royalties due to gas cost allowance. Together, these items accounted for $0.09/share of the 02 beat.
Minor Tweak to Production Guidance: Due largely to unexpected third-party plant downtime in Q3 (impacting volumes by 1,250 mBOE/d), the company lowered the high-end of its production guidance. NuVista is now targeting full vear average production of 76-78 mBOE/d (from 76-79 mBOE/d). The 2023 capital budget is unchanged.
Higher-Than-Expected Share Repurchases in Q2: Based on our assumption
Nuvista would direct 75% of FC to the NCIB, we had anticipated 0.8mm shares would be repurchased in Q2. However, the company materially exceeded this repurchasing 3.6mm shares equating to 2x FOF.
• Our View: We believe the company was maximizing purchases under the prior NCIB, which expired June 13. This should allow more flexibility for higher repurchases over the subsequent 12 months if commodity prices support stronger-than-forecast FC. We currently estimate NuVista will repurchase 11% of current shares outstanding over the next 12 months
TD Investment Conclusion
NuVista has proven itself as an excellent operator, in our view. Since the current CEO took the helm, the company has methodically developed each area within its portfolio, has been conservative with its guidance and delivered well results and capital costs that exceeded our expectations. However, this success and growth has resulted in current production which is only -25% from the company-stated maximum capacity of its assets. Although we suspect this capacity grows with time and success in early-stage horizons (ie, lower Montney), it lacks the running room of some of its Montney peers, which we believe partially explains its lower relative valuation. We are increasing our target to $14.50 (from $14.00) based on 3,6x 2024E EVIDACF (from 3.4x). Our BUY rating is unchanged
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