Nice upgrade to $18.50 by ATBFrom Monday's Globe and Mail:
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ATB Capital Markets analyst Amir Arif sees Peyto Exploration & Development Corp. (
) possessing “relative cashflow resilience” among gas-weighted producers.
In a research report released Monday, he “slightly” reduced his third-quarter production estimates for the Calgary-based company to reflect field level estimates. He also trimmed his fourth-quarter expectations due to shut-in volumes.
“We do estimate that unit operating costs, which have been trending lower, will be higher this quarter to reflect the shut-in volumes and turnaround activity,” Mr. Arif said. “However, we remain comfortable in the declining nature of total cost structure into 2025.”
The analyst said Peyto’s cashflow position will be a “key differentiator” compared to its peers moving forward.
“While AECO gas spot prices are down from $1.19/mcf [thousand cubic feet] in Q2/24 to $0.69/mcf in Q3/24, we estimate that the CFPS for PEY will only decrease 5 per cent, reflecting its high hedge levels as well as its low AECO spot gas exposure,” he said. “Additionally, the Company’s Cascade Power feedstock agreement started up on September 1, 2024, further reducing its AECO exposure to minimal levels for the remainder of 2024.
“The key takeaways from the Company’s monthly shareholder update that was released October 3, 2024 after market close include field level production estimate of 120 mboe/d [thousand barrels of oil equivalent per day] for the quarter, shut in volumes of 5.5 mboe/d (reflecting approximately 4.5 per cent of corporate volumes), expected restart of these volumes in October/November dependent on gas pricing, and a data point to estimate gas price realizations from its recent Cascade agreement.”
Maintaining his “outperform” recommendation, Mr. Arif raised his target for its shares by $1 to $18.50. The average is $17.90.
“In our view, PEY remains a lower risk avenue to obtain gas exposure given the structural uplift in demand coming from the LNG projects being built out in the U.S.,” he said. “Its low opex structure, low AECO exposure, high fixed hedges, and lower EV/DACF valuation relative to its gas peers reduce the risk profile. At the same time, its 8-per-cent dividend yield provides a return while investors wait for the upcoming structural improvement in gas demand from LNG buildouts. We are increasing our PT from $17.50 to $18.50, which reflects 4.6 times 2025 strip EV/DACF. At strip, PEY trades at 4.1 times 2025 EV/DACF relative to its Canadian gas weighted peers which trade at 4.9 times.”
Peyto Exploration and Dvlpmnt Corp
16.09+4.05 (33.64%)