Peyto Exploration & Development Corp T.PEY

Scotia Target $26. Divy increase very positive

[Westcoastenergy]

Peyto Exploration & Development Corp.

• PEY-T: C$12.33
• Target: C$26.00
• Rating: Sector Outperform

Solid Q3/22 Results; 120% Dividend Increase

OUR TAKE: Positive. PEY’s Q3/22 release had some of the “adventure quality” typical of the company’s quarterly prints, but on balance looks to be a big win for investors. Adjusted Funds Flow and Free Cash Flow came in ahead of consensus on lower-than-expected cash costs (we were ~5% high on top line natural gas realizations despite our best efforts), while the 2022 and 2023 budget and guidance updates will likely bring Street estimates slightly down (our 2023 CFPS is down <2%). However, PEY’s 120% dividend increase was the biggest news by far. The revised dividend will give investors a double-digit yield on the current share price. Importantly, we expect the dividend to consume just ~40% of free cash flow on current strip prices, with the 2023 capital program and dividend payments sustainable below US$2.50/mmBtu Henry Hub (a testament to the stability hedging can provide). We continue to like what the stock has to offer with a 1) superior, sustainable, and consistent shareholder returns, 2) a deleveraging balance sheet, 3) risk managed natural gas exposure, and 4) ongoing development of the high-return Chambers / South Brazeau assets.

KEY RESULTS

120% dividend increase. PEY will increase its monthly dividend to $0.11/share (from $0.05/share) effective January 2023 payment (payable in February 2023), resulting in an ~11% yield on the current share price. The increase is significantly ahead of our forecast for a 20% increase. We estimate the increased dividend will use just ~20% of annual cash flow and ~40% of annual free cash flow through 2025 (on strip pricing), making it highly sustainable. Moreover, we estimate PEY’s 2023 capital program (our forecast, which is above the company’s guided range) and increased dividend will break-even at less than US$2.50/mmBtu Henry Hub (assuming US$75/bbl WTI) (strong positive).

Solid Q3/22 results. Production and capex were previously reported in the October 2022 and November 2022 President’s Monthly Reports (note: actual production was slightly [<1%] below the pre-reported volume). AFF per share of ~$1.13 was moderately ahead of consensus on lower-than-expected cash costs. Free cash flow came in ~13% ahead of consensus on the back of the AFF beat. See Exhibit 3 for detailed results versus consensus expectations (positive).

2022 capital budget increased. PEY raised its 2022 capital budget ~$75M to $450M. This compares to us at ~$460M and the Street at ~$430M. The additional capital will support the company’s shift to drilling longer wells and deeper horizons, as well as additional pads, pipelines, and gas plant connections in the Chambers area (slight negative).

[newcoin]

KEY RESULTS 120% dividend increase. PEY will increase its monthly dividend to $0.11/share (from $0.05/share) effective January 2023 payment (payable in February 2023), resulting in an ~11% yield on the current share price. The increase is significantly ahead of our forecast for a 20% increase. We estimate the increased dividend will use just ~20% of annual cash flow and ~40% of annual free

[newcoin]

PEY is safe at $2.50 Henry Hub if it were ever to get that bad. It won't, so all is good.  Moreover, we estimate PEY’s 2023 capital program (our forecast, which is above the company’s guided range) and increased dividend will break-even at less than US$2.50/mmBtu Henry Hub (assuming US$75/bbl WTI) (strong positive).

[houbahop]

Who's the analyst? Dividend safe at $2.50usd/mBTU??? Peyto is paying close to a dollar to bring its gas to Henry Hub. Peyto all-in cost is around $2.75cad/mcf. The rest of the analysis is rubish, imo. Maybe you should give him a call to see if he still sees $26 as a price target. But Peyto has proven they can borrow its future to finance dividends. There is way too much gas on the market

[newcoin]

Worth repeating. $.11 dividend safe at $2.50 Henry Hub. There is no going back.

[newcoin]

Break even at less than US$2.50 Henry Hub.   KEY RESULTS 120% dividend increase. PEY will increase its monthly dividend to $0.11/share (from $0.05/share) effective January 2023 payment (payable in February 2023), resulting in an ~11% yield on the current share price. The increase is significantly ahead of our forecast for a 20% increase. We estimate