TD Target likely to change tomorrow
TD SECURITIES INC. - CANADA October 31, 2024 Price: C$8.38 (10/30/2024) Price Target: C$15.00 BUY (1) ESG SCORE: 60/100 VEREN INC. QUICK TAKE: EARNINGS UPDATE LOWER Q3 AS EXPECTED. FORWARD GUIDANCE CHANGES DISAPPOINT Aaron Bilkoski^ 403 299 3294 aaron.bilkoski@tdsecurities.com Dustin Besaw, CFA^ 403 292 2804 dustin.besaw@tdsecurities.com Key Data Symbol Market Cap THE TD COWEN INSIGHT
Although the street was expecting a weaker quarter than modeled only a few months ago, the company's revised 2024 production guidance and full-year 2025 production guidance was unexpectedly lower than TD Cowen/Street expectations on slightly higher capital spending. This, in our view, is not likely the pivot point where VRN closes the valuation discount versus peers. TSX: VRN-T C$5.2B Event: Reports Q3 Results; Production Guidance Down. Impact: NEGATIVE Q3 Results In Line with Recently Revised Lower Expectations: Veren reported production of 184.8 mBOE/d, which was in line with current TD/Consensus expectations of ~185 mBOE/ d and 2.6% shy of the Street’s original expectations of ~190 mBOE/d 1.5 months ago. It was well anticipated that third-party plant outages negatively impacted Q3 results. CFPS of $0.86 (including ARO), was modestly lower than TD ($0.87) and Consensus ($0.88). Negative Guidance Revisions Result in 2025E Shy of Our Expectations: Veren lowered its full-year 2024 average production guidance to only 191 mBOE/d (from 192.5-197.5 mBOE/d). We had previously forecast the low-end of guidance at 192.8 mBOE/d - one of the lowest estimates on the Street. The 2024 production guidance implies Q4 volumes of only 191 mBOE/d, which was well below our last published estimate of 195.3 mBOE/d and current Consensus of 196 mBOE/d. Looking out to 2025, the company is guiding to full-year average production of 188-196 mBOE/d (192 mBOE/d average) versus our prior forecast of 204 mBOE/d and Consensus 203 mBOE/d. The 2025 budget was set at $1.48-1.58bln versus TD of $1.47bln and Consensus of $1.49bln. Our View: This volume weakness relative to TD/Street expectations continues through 2025. For context, the newly introduced 2025 production guidance is ~5.5% below TD Cowen/ Consensus expectations with the mid-point of estimated volumes implying little growth from the revised lower Q4/24 implied production guidance.
VALUATION METHODOLOGY AND RISKS Valuation Methodology Energy Producers - Junior & Intermediate: Our target prices for the Canadian Integrateds, E&Ps and Energy Royalties are derived through a combination of: i) a multiple (based on historical trading ranges) applied to forward Debt Adjusted Cash Flow (DACF), and ii) a DCF-based Net Asset Value estimate (NAV). Investment Risks Energy Producers - Junior & Intermediate: Risks include: the loss of key employees, disappointing drilling results, volatile commodity prices, operating cost increases, capital cost overruns, product supply and demand, unplanned third-party infrastructure outages, financing/access to capital, government regulations, legislation, royalties, taxes, exchange rates, interest rates and environment and weather concerns. Risks To The Price Target Key risks associated with our target price include business risks of the company and industry, including loss of key employees; drilling success; volatile commodity prices; operating costs; capital cost overruns; product supply and demand; financing/access to capital; government regulations; legislation; royalties; taxes; exchange rates; interest rates; environment and weather concerns; successful execution of the transition plan and updated strategy; and there is no guarantee that current bank credit facilities will be renewed at current levels or that undrawn credit capacity will be available to repay other creditors in the future