Canaccord bullish on WCP - $14.50 targetRating BUY unchanged WCP-TSX Price Target C$14.50 unchanged
C$10.15 Market Data 52-Week Range (C$) : Avg Daily Vol (000s) : Avg Daily Vol (M) : Market Cap (C$M) : 8.15 - 11.91 Dividend /Shr (C$) : Dividend Yield (%) : Shares Out., Basic (M) : Net Debt (Cash) (C$M) : Enterprise Value (C$M) : NAV /Shr (C$) : FYE Dec Total Production (boe/d) 2023A 156,500 2024E 169,755 Gas (%) CFPS (C$) 34.2 36.2 2.96 2.83↓ Previous EV/BOEPD (C$)-2.84 2.84 48,066 EV/DACF (x) 42,802 4.0 4.0 4.0 D/CF 14 0.8 0.7 13 12 11 10 9 8 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 WCP.CA S&P/TSX Composite Oil and Gas E&P (rebased) Source: FactSet Priced as of close of business 11 June 2024
Investor Day highlights; breadth and depth of inventory take centre stage 1,614 2.3 6,069.7 0.58 7.2 598 1,518.3 7,642.8 19.19 2025E 175,016 37.1 2.83↓ 40,894 0.6 May-24 Jun-24 Tuesday morning, WCP hosted a virtual investor day that focused on the breadth and depth of its asset base. Although the company made no changes to its five-year plan out to 2029 (which is expected to see production grow organically by ~5% per year to 215,000 boe/d), WCP did highlight a scenario with this growth accelerated, adding another ~20,000 boe/d over this time and implying a CAGR of ~7%. Expectedly, this incremental growth would hinge on prevailing commodity prices with a decision on this accelerated growth not required until late 2026. We believe the takeaway here is that WCP has assembled an envious asset base that is able to support this growth organically while having a healthy balance sheet (0.7x D/CF at year-end) to help further strengthen the outlook through targeted acquisitions. For context, the 5% CAGR through 2029 will see the company consume less than 10% of its Montney/Duvernay drilling inventory and under 33% of its conventional inventory. WCP remains our top liquids-weighted name in our coverage universe, and we view the current 4.0x 2024E EV/DACF and 0.5x NAV multiples it currently trades at as an attractive entry point for a company paying a 7% dividend and growing ~5% annually through the balance of the decade. We reiterate our BUY rating and $14.50 target on WCP, which maps to a 2024E EV/DACF multiple of 5.4x. Highlights: Depth of inventory provides runway for growth. Over its five-year plan, the majority of production growth is expected to come from its Montney and Duvernay assets, specifically at Kakwa, Musreau, Lator, and Kaybob. WCP has over 2,462 locations (~15% booked) across its Montney and Duvernay assets with over 50% falling into Tier 1 and 2 categories (with average payouts of 1.0 and 1.4 years, respectively, at US$75/bbl WTI and $3.00/GJ AECO). Despite growing ~5% per year through 2029, WCP expects this to consume ~200 locations, or less than 10% of drilling inventory. At Kakwa, WCP highlighted a 53% type curve improvement on 2023 wells compared to the average of prior-year wells due to downspacing from eight wells to six wells per section. At Musreau, with the completion of the 20,000 boe/d 05-09 battery in March, WCP expects to reach nameplate capacity by year-end as eight wells come online (up from current throughput of ~14,000 boe/d). At Lator, the company outlined an initial phase of development that would include a 30,000-40,000 boe/d facility costing ~$250-300M, which would come online in late 2026 to early 2027. Longer term, a second phase would include incremental capacity of 30,000-50,000 boe/d for another $150-300M to facilitate growth in 2029 and beyond. While we believe WCP will look to maintain operatorship, the company could look to third parties to minimize the capital outlay. Conventional assets offer sustainable foundation. Among WCP's conventional assets, the company's five-year plan is expected to consume less than 33% of its 3,980 potential locations. This will effectively maintain production levels across its conventional assets (with the Montney/Duvernay driving the growth). Ultimately, we expect WCP to continue seeking tuck-in opportunities across its conventional asset base, akin to its $154M Viking tuck-in last December. In our view, the conventional assets provide reliable FCF generation that the company can recycle into its Montney and Duvernay growth plans. Aiding this is approximately one-third of its corporate volumes being under secondary/tertiary recovery, including its 65% ownership in the Weyburn CO2 project. Together, its conventional assets have a relatively modest decline of ~20%. Estimate changes: We made minor adjustments to our 2024 and 2025 estimates, which are summarized in Figure 5