Post by
retiredcf on Nov 04, 2022 10:14am
CIBC
Also have a US$22.00 target. GLTA
EQUITY RESEARCH
November 3, 2022 Earnings Update
ENERPLUS CORPORATION
Q3/22 Results: Another Beat And Raise Quarter
Our Conclusion
Enerplus reported a production and cash flow beat for Q3/22, a dividend
increase, and a guidance increase for the balance of 2022. Management
maintained its return of capital strategy, targeting a >60% free cash flow
allocation to shareholder returns, which will carry into 2023. We expect ERF will have ~$100MM to retire stock through November and December on its NCIB, and we would not be surprised to see the company look to tactically use a substantial issuer bid at some point in 2023. Its continued focus on shareholder returns, strong balance sheet, and discounted valuation make Enerplus an attractive mid-cap name relative to peers. Our estimate revisions are immaterial overall, but we do take this as a net favourable update, which should be supportive for the shares.
Key Points
Q3 results top expectations. Production of 107.8 MBoe/d was above our
estimate of 105.4 MBoe/d and Street at 104.5 MBoe/d. Capital spending of $115MM was in line versus our estimate at $115MM and Street at $113MM. Cash flow of $1.49/sh was above our estimate and Street at $1.45/sh.
Dividend increased by an additional 10%, and lean payout ratio
indicates more dividend increases are likely in 2023. The company
announced a 10% per share dividend increase with its quarter, which
translates to ~$48MM annually. On recent strip pricing, this represents a
<5% dividend payout versus funds flow, so we believe ERF could continue to increase its dividend through 2023.
Return of capital initiatives should see buybacks accelerate through
November and December. Management reiterated its intention to return a
minimum of $425MM to shareholders in 2022, which maps to a further
$154MM likely to be returned through Q4/22. Including the revised dividend and NCIB activity through October, we estimate Enerplus will have ~$100MM available for its NCIB through November and December, or ~5.8MM shares.
Production and spending guidance revised upwards for 2022. Enerplus
increased its production expectations to 100.4 Mboe/d for 2022, up from its prior guide of 99.5 MBoe/d, despite Canadian disposition activity. Liquids volumes were guided 1 MBbl/d higher on the year. Capital spending guidance was tightened to $430MM, up from prior midpoint of $420MM. The revision is below our estimate of $437MM, but lands ahead of Street at $418MM.
Q4/22 guidance slightly stronger than estimates. Production guidance for
Q4/22 was indicated at 105-110 Mboe/d (consensus 106 Mboe/d), including liquids of 64-68 MBbl/d (consensus 65.6 MBbl/d).