Raymond James ups TPZ to $34 target In a report titled TPZ Makes It Look EZ-PZ, Raymond James analyst Luke Davis initiated coverage of Topaz Energy Corp. (
) with an “outperform” recommendation, believing its hybrid royalty-infrastructure model “enhances optionality and provides stable, recurring cash flow.”
“We believe the company is aligned with some of the top operators in the WCSB, which we expect will drive peer-leading payor funded growth over the next several years with the infrastructure business providing cash flow stability to backstop the dividend,” he said. “Further, we expect M&A will remain a key value driver - management has proven the ability to consistently execute accretive transactions.”
Mr. Davis also said the Calgary-base company’s “peer-leading” growth is funded and driven by “quality” payors.
“Based on our current estimates, we expect Topaz will exhibit the highest organic growth rate among royalty peers in our coverage universe over the next several years (4-5 per cebt) largely driven (and entirely funded) by some of the highest quality operators in the WCSB,” he said. “While we do expect natural gas will outpace liquids (5-6-per-cent natural gas growth, 2-3-per-cent liquids growth), we note that the majority is operated by Tourmaline that has favourable marketing agreements in place and limited direct exposure to AECO.”
He emphasized its balance sheet is in “good shape” and now expect “rapid deleveraging” following its $278.2-million deal with Tourmaline Oil Corp. (
) for a gross overriding royalty interest in recently acquired lands in Alberta and B.C..
“Following the latest acquisition from Tourmaline, we see the company exiting 2024E/25E with $470/$330 million in net debt, mapping to 1.6 times/1.4 times D/CF. In our view this is very manageable in the context of natural deleveraging to the tune of roughly $125+ million per year, combined with a $700 million credit facility that we expect will be 50-per-cent undrawn at year-end 2025,” he said. “Management remains highly focused on consolidating high quality assets within Canada, and we expect the team will continue to look for opportunities to bulk up the infrastructure portfolio trending to a longer-term revenue balance (currently 75-per-cent weighted to royalties).”
Mr. Davis set a $34 target for Topaz shares, exceeding the $30.96 average on the Street.