Post by
savyinvestor333 on Jul 30, 2021 7:29am
From Scotia this Morning $24.00 Target
Topaz Energy Corp. Oil Growth Drives Q2/21 Beat
OUR TAKE: Positive. TPZ delivered strong Q2/21 results with higher-than-expected oil royalty volumes driving EBITDA and Adjusted Funds Flow (AFF) beats. With the company poised to once again hold a GORR on substantially all acreage and production owned by Tourmaline Oil Corp. (TOU-T; SO), we expect TPZ to shift its focus to acquisitions from additional high quality counter-parties. Looking ahead, we see TPZ benefiting from its exposure to organic royalty production growth on the TOU asset base and its non-TOU Clearwater and Charlie Lake assets and additional acquisitions facilitated by its low cost of capital. We believe that TPZ offers a compelling investment case given its: (1) strong upstream and midstream asset base; (2) top-tier free cash flow conversion profile and dividend growth potential (demonstrated by the recently announced 5% dividend bump); and (3) emerging position as the financial partner of choice for quality E&Ps in a capital constrained market. We maintain our Sector Outperform rating and $24.00 per share Target Price.
KEY POINTS Oil growth drives Q2/21 beat. Royalty production of 12.3 mboe/d (89% gas) was in line with expectations; however, liquids volumes came in ~7% ahead of the Street on higher heavy oil volumes. As a result, EBITDA and AFF per share both beat consensus forecasts (see Exhibit 1). TPZ converted ~91% of its revenue into free cash flow (vs. ~90% in Q1/21) and the company paid ~$25.7M in dividends during Q2/21, resulting in a simple payout ratio of ~69% (up from ~65% in Q1/21)