Post by
danche on Aug 16, 2021 2:08pm
Scotia Outperform $10.50
OUR TAKE: Positive. SDE delivered strong Q2/21 results, with production in line with expectations and Adjusted Funds Flow (AFF) per share ~13% ahead of the Street on lower-than-expected operating and royalty expenses. The company also exited the quarter with a higher working capital surplus on the AFF beat and lower capital expenditures. While we see the quarter as a positive, the recently announced acquisition of Velvet Energy Ltd. (private) continues to be a much bigger story for the stock. The deal was met with a chilly reception in the market and the stock is now ~8.5% below the price of the accompanying equity raise. While we think the acquisition makes a lot of sense from both asset fit and valuation perspectives, we see the amount of leverage added with the deal increasing the company's risk profile. We are looking for positive results from the SDE's first batch of Montney wells and further details on the company's go forward plans (expected after the the equity raise closes) as key steps toward easing market concerns and getting the stock back on track.
Comment by
fauxtomato on Aug 16, 2021 2:56pm
Can't be easy selling the new shares now that they're trading 15% below the offering. Velvet has turned SDE from a 2022 story to a 2023 story but the upside has gone from ~$7/s to ~$9. Hope to get more clarity and an updated presentation soon, seems odd they'd wait till the offering closes as Scotia implies.