BMO initiates coveragemarket perform with target of 10.50 !!!
Price: $8.81
Target: $10.50
2004A EPS: $0.10
2005E EPS: $0.14
2006E EPS: $0.30
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Title: Initiating Coverage at Market Perform on Heavy Oil Pure Play
Event: BlackRock Ventures is a junior oil and gas company focused on the exploration and production of heavy oil. Operations began in 1996; however, it was not until 1999 that the company became focused solely on heavy oil. BlackRock maintains core interests at Chipmunk and Seal in Alberta as well as Lloydminster, Saskatchewan. The company also operates a heavy oil SAGD pilot project at Hilda Lake, Alberta.
Impact:
Forecasts: We expect BlackRock to generate DCFPS of $0.47 in 2005 and $0.81 in 2006, based on our current commodity price outlook and assuming average production of 10,372 boe/d in 2005, and 15,732 boe/d in 2006.
Valuation: BlackRock shares currently trade at 10.9x 2006E DCFPS and 8.8x 2006E EV/EBITDA, which is above the resource peer group averages of 5.8x 2006E DCFPS and 6.2x 2006E EV/EBITDA, respectively. Given the company's strong production growth forecast and vast heavy oil resource potential, we believe BlackRock shares will continue to trade above its peers. Our target price of $10.50 reflects this premium valuation and implies a 2006E P/CF of 12.9x 2006E DCFPS.
Recommendation: With an implied return of 19% from its current trading price, we rate BlackRock Market Perform. We note that improved heavy oil differentials coupled with a definitive decision on the future of the Orion project could strengthen our view on the company's shares.