Post by
Nadia6519 on Nov 15, 2023 8:59am
National Bank
Birchcliff Energy Ltd.
2024 Covered
BIR (TSX) STOCK RATING TARGET EST. TOTAL RETURN C$7.48 Outperform (Unchanged) C$9.25 (Was C$9.75) 34.4%
Q3/23 Operating & Financial Results
Q3/23 Results in Line The company reported third-quarter operating & financial results in line with our expectations, including average production of 74.1 mboe/d (19% liquids) and associated CFPS of $0.27 (vs. consensus $0.30 & NBF $0.26). Volumes were seasonally managed (-4% Q/Q vs. AECO +6% Q/Q), which in addition to newly established marketing contracts (including a propane supply agreement with a polypropylene manufacturer) contributing one-time cost increments ($0.02 per share) saw cash costs expand sequentially (+16% Q/Q; expected to normalize through Q4), while its cash netback trended towards $10.59/boe (+7% Q/Q).
Preliminary 2024 Guidance & Updated Outlook
Through the period, the company allocated 22% of its existing 2023 capital budget, which with the above-noted compression of returns, implied a 90-95% payout ratio. Going forward, it expects to conclude its 2023 program as anticipated, with production to seasonally expand (+10% Q4/Q3), while its 2024 preliminary capital plans were generally announced in line with expectations (+2% vs. consensus), with a $270 mln program (generally flat Y/Y) anticipated to maintain production in the range of 78 mboe/d. The only nuance of that program will be the pre-spend of $20 mln (7% of budget) through Q4/23 as a means to level load and manage cost pressures.
Capitalization Update
In sum, the outlook around its 2024 capital program and primary return mechanism of its 11% cash yield is well supported from a risk-adjusted value perspective through its 2024 outlook, under a ~90% total payout and 0.5x leverage profile.
Maintain Outperform Rating & Reduce Target to $9.25 The company transited seasonal weakness as anticipated and is positioned for a solid risk-adjusted value proposition through the outlook (predominantly referenced through the sustainability of its primary return mechanism of a 11% cash yield). BIR is poised for a 14% return profile (vs. peers 19%) on leverage of 0.5x (vs. peers 0.0x), while trading at 4.3x 2024e EV/DACF (vs. peers 3.9x).