ARC Resources Ltd T.ARX

RBC Global Energy Best Ideas List

[retiredcf]

Just saw their latest report this morning and pleased to say that ARX is one of 8 Canadian companies on the list. For those who are curious, the others are CNQ,TOU, CVE, TVE, ALA, SES and AQN.  GLTA

ARC Resources (ARX)

Michael Harvey, Analyst [phone] [e-mail]

 FCF generation – ample. ARC is set to generate $1.8 billion in 2022 on our numbers. With a strong balance sheet and large M&A on hold (for now), the focus remains on Attachie development and RoC initiatives. ARC targets return of capital in the range of 50-80% of FCF via base dividend tied to earnings growth (now at $0.40/share or 3.3%), and share buyback (could easily buy back 10% of float annually). Production growth is not a specific target but rather an outcome of the most efficient way to execute projects (Sunrise, Attachie) paired with the Basin's capacity to absorb new product, and is unlikely to exceed 5%.

 Western Canada’s largest Montney player. ARC's all-stock merger with Seven Generations creates a player with a production base of circa 340,000 boe/d, building what we view as a Montney Champion with top decile supply costs and deep project inventory. This benchmarks ARC as the largest Montney producer, 3rd largest outright gas producer and 6th largest E&P by volume amid the WCSB producer landscape, with operated facilities network of ~1.5bcf/d – second only to CNRL and Tourmaline. See our notes here and here.

 Facility portfolio adds scale and optionality. Following the absorption of 7G assets, ARC’s owned and operated facility portfolio roughly doubles to about 1.5 bcf/d – now third in the basin behind CNRL and TOU. This larger strategic footprint allows for continued top-quartile operating metrics and optimized marketing, and it establishes critical mass, opening the door for other potential strategic options in the future. A simplified analysis implies that a Topaz-like entity could be valued at around $1.5 billion with a 9% FCF yield, driving meaningful accretion and/or utilized as a funding vehicle for future projects. See note.

 Improved scale and history of consistently delivering on quarterly numbers. Comparative metrics of the ‘new’ ARX relative to other Montney players (especially Tourmaline) shifts into sharper focus. We argue that ARC’s liquids, FCF outlook and strategic position/scale makes it comparable to U.S. peers. Throughout the time we have covered ARC, the company's ability to meet or exceed guidance figures is amongst the most favourable in the group – see our recent note here. This is all backstopped by the company’s high quality acreage and a conservative mindset – ingredients we see continuing amid the combined entity.

[topdown99]

It would seem my optomism in ARX was misplaced as old trading patterns continue to repeat

[topdown99]

Not being able to hold the $12 level is discouraging , I've seen better traction wearing bowling shoes on polished hardwood flooring .

[deepblue]

RBC has $17 target which is on the conservative side compared to others.