Bullboard - Stock Discussion Forum Tourmaline Oil Corp (Alberta) T.TOU

Alternate Symbol(s): TRMLF

Energy Oil & Gas E&P

Tourmaline Oil Corp. is a natural gas producer, which is focused on producing natural gas in North America. The Company is focused on long-term growth through an aggressive exploration, development, production and acquisition program in the Western Canadian Sedimentary Basin. It operates in three basins, which include the Alberta Deep Basin, NEBC Montney Gas/Condensate and Peace River Triassic... see more

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TSX:TOU - Post Discussion

Tourmaline Oil Corp (Alberta) > TD

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Post by retiredcf on Jun 03, 2022 7:06am

TD

TD have always been at the low end of the target spectrum. GLTA

Tourmaline Oil Corp.

(TOU-T) C$79.53

Fantastic Company, but Valuation Stretched

Event

TOU Bumped Base Dividend. TD Lowers Rating to HOLD (Target Price Unchanged).

Impact: NEUTRAL

Base Dividend Increased: TOU increased its quarterly base dividend to $0.225/ share. This represents an increase of 12.5% from the previous level. The base dividend represents only 1% of our 7% 2022E cash return to equity holders.

TD Investment Conclusion

Tourmaline has been a fantastic Canadian natural-gas business, with nearly flawless strategic execution over the past several years. These value-creating strategic steps include:

The spin-out of Topaz (TPZ-T), which highlighted the value of its midstream assets and subsequently acted as a vehicle to enhance M&A accretion.
Significant upstream consolidation at much-lower-than-current natural-gas prices.
Acting as a first mover on its prudent strategy to match growth with end-user demand (i.e., capital restraint and lower growth).
Being the first Canadian entity to enter a JKM-linked LNG supply agreement.
Well-timed term-debt financing decisions.
Early adoption of the now ubiquitous industry strategy to return FCF to equity holders. It was in a position to be the first mover, given that it had kept its balance- sheet leverage comparatively low through the cycle.

Given Tourmaline's strong operational and strategic execution, combined with its dominance in the basin, the business warrants a premium valuation, in our view. However, we believe that the natural-gas price implied in TOU's current share price has reached a level (on both an absolute and relative basis) where we can no longer justify a BUY rating on the otherwise outstanding company.

We believe that if gas prices outperform our seemingly conservative assumptions (or the HH price reflected in TOU shares), its lower-valued E&P peers have the potential to outperform TOU. Alternatively, should gas prices erode, we believe its lower- valued peers (or more liquids-weighted E&Ps) may prove more defensive. Based on our unchanged $80.00 target price, we are lowering our rating to HOLD (from Buy)