National BankNational Bank Financial analyst Dan Payne continues to see Tourmaline Oil Corp. as a bellwether for the natural gas industry, which he sees as “one of the most dynamic & proactive” groups in the [energy] sector. In a research report released Tuesday, he said the Calgary-based company is one of the only names experiencing a rising tide of funds flow and sees it well-positioned to benefit from the gas trade.
“Through the value proposition established by its dynamic & proactive approach, the company has created scale and opportunity that is an order of magnitude ahead of that of its peers; representing 15 per cent of domestic natural gas production (vs. largest U.S. peer 5-10 per cent) AND 15 per cent of conventional oil & liquids production, it is dominant in all realms,” he said. “With that, its $22-billion market capitalization is buoyed by solid funds flow in support of a premium valuation (6.1 times 2025 estimated EV/DACF [enterprise value to debt-adjusted cash flow] on strip vs. peers 5.1 times).”
In a research report released Tuesday titled The Value a Reflection of a Dynamic & Proactive Approach, Mr. Payne acknowledged its multiple is “a significant source” of his conversation with investors, discussing “What’s fair, why & how is it, where is it going?”
“Its easy to say that scale elicits a strong relative multiple, or that its booked NPV [net present value] suggests value through our target, while we can also point to the consistency & significance of its return of capital as providing yield support, and certainly given its relative exposures it should be comped closer to U.S. peers than CDN!!! All done, conversation over,” he added.
Calling it “one of Canada’s structurally most important companies,” the analyst reaffirmed his “buy” recommendation and $72.50 target for Tourmaline shares. The current average is $77.25.
“Was it too early for the street to chase the gas trade in the spring? Definitely,” said Mr. Payne and his colleagues in a Tuesday report titled Something is Percolating; Structural Trends in Support of the Gas Trade. “Could we put a brutal 2024 behind us and look forward to better structural support going forward? Probably. As with all things in gas markets, that’s as definitive as you can make them (i.e. things were definitely bad, and at best, possibly get better), but there is absolutely reason to be optimistic looking in to 2025 and beyond (as distilled in our prior publication; multiple sources of impending improvement for supply/demand). Uneveness in the market should continue to be expected as structural support entrenches itself (whether over quarters or years), and even the most optimistic gas producer will tell you that tactical positioning will remain important (risk the outcome of supply & demand trends accordingly). We continue to advocate for businesses that are defensible & opportunistic at relative lows ($2/mcf) with high-impact to be realized as prices rebound (i.e. $4/mcf), whether through insulation of market diversification, liquids, costs or a discounted valuation, and which we reflect in best positioning of; Large Caps (TOU & ARX) before pivoting towards higher-impact names like (AAV, PEY, SDE & BIR) plus the free-option gas exposure of TPZ.”