RE:RBCGood or bad, it's hard to read that report and not think of the inherent bias. How many millions of shares is RBC still sitting on?
In any event, thanks for posting.
retiredcf wrote: Their upside scenario target is $16.00. GLTA
Outperform
TSX: CPG; CAD 9.73
Price Target CAD 13.00
Crescent Point Energy Corp.
It's Hammer Time - Growing the Montney Footprint
Our view: Crescent Point’s acquisition of Hammerhead Energy builds scale amid its Montney core and adds a meaningful runway of liquids-rich targets to the company’s E&D portfolio. The transaction vaults the company into a top 7 Montney player in Western Canada (see Exhibit 6) and given CPG's discounted valuation vs peers, should drive a more visible path to an expanded trading multiple.
Key points:
• A Jumbo Bolt-on. CPG will acquire Hammerhead Energy for a total consideration of $2.6 bn comprised of cash ($1.5 bn), CPG stock ($550 million) and the assumption of $450 million in debt. This transaction represents the company's fourth large-scale transaction in the past 12 months (Duvernay, Spartan, North Dakota). Metrics of $45,500/boe/ d (HHRS 2024e: 56 mboe/d) and 3.4x NOI appear fair to us (but not inexpensive), as the deal approximates 2P NAV of the assets (based on our NAV value), and features 20 years of drilling inventory, 252 net booked locations, and 105,000 net acres of contiguous land and infrastructure. See mapping, well analytics and pro-forma analysis in exhibits attached to this report.
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Building a Montney Oil Core. Development in the Hammerhead features ~25-30 wells per year, or ~$400mm in annual investment on a two- rig plan and is forecast to reach 80 mboe/d by 2026 with a view to optimizing capital costs and overall efficiencies. The asset will be grouped with the existing SDE lands on a three-rig plan with 80% of corporate capex now allocated to the Kaybob Duvernay and Alberta Montney (remaining to Saskatchewan). The HHRS asset is relatively young, key focal points will be management of base decline rates (currently 40%+ on HHRS), overall well performance and lower-pressured Eastern lands as delineation continues.
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Accretive on per-share metrics, roughly neutral to valuation. The transaction is accretive on per-share metrics (neutral to valuation) given the large cash component; our 2024 CFPS estimate increases by 23% and CPG’s FCF yield increases to 27% (from 17%) as detailed in Exhibit 3. In addition, to provide the necessary liquidity CPG has implemented a new three-year term loan for $750mm. CPG's 2024E leverage now maps to 1.2x (previously 1.0x) on current strip pricing. In the deal, CPG also acquired $1.3bn in tax pools bringing its new total to $8.3bn.
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Valuation - positioned for multiple expansion. CPG’s 2024 production guidance increases to 200–208 mboe/d (from 145–151 mboe/d) with capital increasing to $1.5–1.6bn (from $1.1–1.2bn) driving roughly 220 mboe/d in 2025. Our updated estimates call for CPG to return roughly 60% of FCF to shareholders in the form of buybacks, base + special dividends, mapping to roughly $740 million in 2024 (at futures strip pricing). Given CPG's discounted (2.6x valuation, peers at 3.2x), we see solid execution as the key avenue to multiple expansion as CPG becomes a more broadly accepted 'Montney player'