NB Details (+ Canaccord) Calling its better-than-expected third-quarter results “stout” and “indicative of the accelerated and expanded return potential of the company,” National Bank Financial analyst Dan Payne raised his recommendation for Baytex Energy Corp. (BTE-T) to “outperform” from “sector perform” on Friday, expecting “recent well successes and massive free cash projections (30-per-cent Q4/23 FCF yield forecast) to support accelerated deleveraging and returns.”
After the bell on Thursday, the Calgary-based company reported total production of 150,600 barrels of oil equivalent per day, falling in line with the consensus forecast of 150,000 barrels. Cash flow per share of 68 cents beat the Street’s projection by 3 cents.
“This being the first full quarter of the consolidated entity, volumes and returns outpaced expectations, with strong realizations (up 15 per cent quarter-over-quarter) and cash costs intact (up 5-10 per cent quarter-over-quarter) to support an expanded $42/boe cash netback (up 25 per cent quarter-over-quarter),” said Mr. Payne. “Sequential production growth was generated under a 70-per-cent payout ratio, which suggests a 15-per-cent FCF yield.”
In a research note titled Textbook Portfolio, the analyst said Baytex displayed “strength across the board.”
“Assets continue to positively evolve across its core projects, with current production pressing through 155 mboe/d (and expected to average 160 mboe/d in Q4/23), with notable highlights in: a) Its initial operated Eagle Ford program (the most significant validation of the value of its acquisition) proved strong rates (1,495 boe/d, 78-per-cent liquids) and capital efficiencies (10 per cent ahead of forecast well costs), which should compound its sustainability profile; notably, Eagle Ford volumes are trending around 92 mboe/d (60 per cent of corp.), b) Peavine Clearwater results continued to be prolific (725 bbl/d), with production in the play pressing through its ceiling at 16.4 mboe/d (up 20 per cent quarter-over-quarter), and c) Six-well Pembina Duvernay commercialization program yielded solid results in support of visible growth (950 boe/d, 89-per-cent liquids),” he said.
“With those significant tailwinds, corporate guidance remains intact, with a view towards generating a 30-per-cent FCF yield through Q4/23, which in association with an accelerated share buyback program (2 per cent bought back in Q3/23) in addition to its prevailing cash dividend (1-2-per-cent yield) and further deleveraging (debt expected to exit the year at $2.5-billion, or 1.0 times Q4 D/CF, with next return of capital inflection anticipated in 2025 upon attaining total debt of $1.5-billion).
Mr. Payne raised his target for Baytex shares to $9.25 from $8.50. The average is $7.77.
Elsewhere, Canaccord Genuity’s Mike Mueller increased his target to $8 from $7.50 with a “buy” rating.