TSX:ARX - Post Discussion
Post by
retiredcf on May 10, 2024 8:44am
TD Raises Target
By 2 bucks to $29.00. GLTA
ON TRACK FOR MATERIAL GROWTH THROUGH YE-2024 AND UPTICK IN FCF IN 2025
THE TD COWEN INSIGHT
The key takeaway from ARX's Q1/24 results is the consistent execution across its assets and steady messaging about Attachie Phase 1. We believe the scale of its pure-play Montney asset base, unique (for its size) C5+ weighted production mix, near-term growth from Attachie Phase 1, long-term growth from subsequent Attachie expansions and globally diversified gas marketing make it a core holding.
Event: Reports Q1/24 Results; Key Guidance Metrics Unchanged
Impact: SLIGHTLY POSITIVE
Q1/24 Meets TD, Street Expectations: ARX's Q1/24 production averaged 352.3 mBOE/d (37% liquids), which was ahead of both TD (342.3 mBOE/d) and consensus (345 mBOE/d). Although volumes contracted 4% q/q, this was expected, given the pace of tie-in activity and extreme cold in January.
Q1/24 volumes appear to have exceeded expectations due to better-than-expected well rates at Sunrise. CFPS of $1.00 was in line with TD ($1.01) and consensus ($0.99). NCIB activity was low in Q1/24 ($15mm); however, this is normal, given Q1-weighted capex and longer-blackout period.
Production Cadence Expectations Through 2024E: ARX made no revisions to its capital budget or production guidance through 2025. Looking ahead, ARX is guiding to slightly softer Q2/24 production (325-330 mBOE/d) to align with third-party turnarounds, before ramping up to an average of 370 mBOE/d in H2/24.
Our View: We expect ARX volumes to average 371 mBOE/d in Q4/24, ramping to 385 mBOE/d in Q1/25 (9% above Q1/24 levels). This exceeds the mid-cap group-median
of 5% over the same period. Furthermore, given ARX's strategy to return all FCF via dividends/buybacks, we anticipate that $400mm will be paid out via dividends (3%
yield) and 4% of its shares repurchased by the end of Q1/25. Additionally, with Attachie spending complete, we anticipate 2025 FCF of $1.2bln (8% of the company's market cap).
More Attachie Progress Datapoints Released: Attachie remains on track to be brought on stream prior to YE-2024, with full capacity of 40 mBOE/d (40% gas) reached in Q1/25. ARX has now drilled the 22 (of 40) wells required to fill Phase 1 plant capacity, with the first pad completed in Q1/24. The plant construction is 60% complete and the in-basin gathering system is 70% complete.
Our View: Although some of these data points regarding Attachie's progress are new, they simply reaffirm our view and bolster our confidence that the project will be delivered on time without material capital revisions prior to completion.
ARC offers ~40% liquids exposure, a quality asset portfolio (including largely unbooked Attachie), material growth into 2025E, a sustainable base dividend, the ability to meaningfully reduce share count, and low leverage. Our target price increases to $29.00 from $27.00 as we have increased our NAV multiple to 1.3x (from 1.0x prior) as we are now moving close to full operations at Attachie which is still minimally booked in 2P reserves. We have also increased our target EV/DACF multiple to 6.25x (from 6.0x prior).
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