Post by
savyinvestor333 on May 02, 2023 7:47am
TD View and Target Bump to $23.00
Event Reports Q1/23 Results. Dividend and Guidance Unchanged
Impact: NEUTRAL Stronger-than-expected Royalty Volumes: Q1/23 royalty volumes of 18.9 mBOE/ d exceeded TD/consensus of 18.4 mBOE/d. Volumes increased by 3% q/q, partially driven by higher (4%) growth from NEBC. Topaz saw new wells spud in NEBC increase 71% q/q after the agreed settlement between BC and Treaty 8 First Nations.
We anticipate BC's share of total capital spend to grow as TOU advances Conroy. As with recent quarters, non-commodity-linked midstream revenue provided some CF stability and was $17.3mm, virtually unchanged from the previous quarter as facilities continue to run near capacity (99% utilization). CF Generally in Line with Consensus; Slightly Shy vs. TD: Q1/23 CFPS of $0.50 was generally in line with consensus of $0.52 and slightly shy of our estimate of $0.54.
Our View: The softer-than-forecast CF relative to our estimate is entirely due to realized pricing. This is likely the case where our estimate was simply too high as realized pricing differentials become more challenging to accurately forecast during periods of volatility. We believe investors should look through the CF shortfall and towards the strong operational tailwinds.
Guidance Unchanged: Topaz reiterated its dividend level. This represents a 2023E payout of 63% under strip pricing (targeted range 60-90%). Despite the strong start to the year, with Q1/23 volumes already above the high end of the range, Topaz reiterated its guidance of 18.3-18.8 mBOE/d.
Our View: We believe this unchanged guidance reflects conservatism in the outlook rather than expectations that third-party producers' volumes ebb through the year. For reference, we see consensus expectations for Topaz’s key operators growing corporate volumes between Q1/23 and Q4/23 by 4% (TOU), 3% (TVE), 15% (HWX), and ~0% (TD Est. WCP’s Weyburn). In the long term, management indicated that it anticipates third-party volumes to grow 30-40% by 2028 (or a 6% CAGR), with no incremental capital.
TD Investment Conclusion Topaz offers a unique combination of no-cost royalty exposure to some of the best conventional oil-and-gas upstream plays/operators in the WCSB. This should drive robust organic growth over the next 5+ years. Meanwhile, the current dividend (6% yield) is nearly 40% funded with non-volatile midstream revenue.