RE:Scotia Bank initiates coverage.... Calling it “the SMid-Cap growth leader,” Scotia Capital analyst Kevin Fisk initiated coverage of Athabasca Oil Corp. (with a “sector outperform” rating on Tuesday.
“Our thesis and recommendation are based on (1) capital-efficient growth that maximizes the value of ATH’s substantial reserves; (2) strong forecast FCFPS growth due to ATH’s growth plans and the allocation of all free cash flow toward buybacks; and (3) a solid balance sheet (net cash) that improves sustainability at low commodity prices,” he said. “These factors make ATH attractive in the current commodity environment, while the company’s torque to oil prices provides upside from stronger prices.”
Seeing its valuation as “reasonable,” Mr. Fisk said its trading multiples reflect its growth profile.
“On strip, ATH’s 2025 estimated EV/DACF [enterprise value to debt-adjusted cash flow] of 4.8 times is higher than the company’s SMid-Cap peers, with an average multiple of 4.0 times,” he said. “ATH trades at a discount to its Large Cap peers, which have an average EV/DACF multiple of 6.2 times. ATH’s 2025 DAFCF yield of 7 per cent is lower than the SMid-Cap and Large Cap peers at 10 per cent and 9 per cemt, respectively, due to its higher growth spending. Looking at ATH’s sustaining DAFCF yield illustrates that the company’s valuation is in line with peers once the growth capex is removed. ATH’s 2025 sustaining DAFCF yield of 14 per cent is similar to the SMid-Cap and Large Cap averages of 14 per cent and 11 per cent, respectively. In our view, ATH’s premium trading multiples/yields largely reflect the company’s projected production growth. However, ATH’s outperformance of the last 12 months has also contributed to the company’s premium multiples.”
He set a target of $6.50 per share, exceeding the average on the Street of $6.31.