TSX:TPZ - Post Discussion
Post by
Westcoastenergy on Jul 30, 2024 11:17am
Big jump today on positive news: Scotia target $34
Big Q2/24 Cash Flow Beat and Continued Dividend Growth; What's Not to Like?
OUR TAKE: Positive. TPZ delivered a big Q2/24 beat on higher-than-expected oil and NGL production volumes and ~100% gas processing throughput. The company increased its dividend by ~3% (~6% y/y) for the upcoming Q3/24 payment, continuing the trend of growing shareholder returns in step with business growth. The company confirmed its 2024 guidance and remains well positioned to grow both the business and dividend as it moves foward. TPZ’s unique mix of stable midstream revenue and high margin royalty production revenue — bolstered by strong oil production growth — provides a bridge over troubled AECO prices ahead of differentials tightening after LNG Canada comes online (see Exhibit 1). We believe this unique (and ultra high margin) revenue mix enables TPZ to comfortably fund its dividend, while leaving the majority of its royalty production open to benefit from improving Western Canadian commodity price dynamics. We continue to see TPZ as the top royalty / income stream name in the sector given its: (1) top-tier free cash flow conversion profile; (2) strong asset base / counterparties; and (3) attractive dividend yield and growth potential.
KEY POINTS
Big Q2/24 beat on higher liquids volumes and strong midstream throughput. Production of ~18.7 mboe/d (67% natural gas) was in line with expectations; however liquids volumes came in ~3% higher and contributed to a ~5% upstream revenue beat. Combined revenue came in ~8% ahead of expectations driving a 9% EBITDA beat and 8% cash flow and free cash flow beats. During Q2/24, TPZ realized ~100% utilization from its natural gas processing assets (~227.4 mmcf/d throughput), 94 gross wells (3.8 net) spud (skewed to NE BC Montney and Clearwater) and 22 gross wells placed on production on its royalty acreage. 72 gross wells spud during the quarter were carried into Q3/24. The company spent ~$1.1M on maintenance capex (and capitalized G&A) during the quarter, while ~$4.0M was spent on the Clearwater natural gas gathering project ($19.2M to date). TPZ will fund the final cost of the project (estimated at <$25M) at completion in late 2024, with annual run rate midstream revenue from the project estimated at $3.7M (subject to adjustments based on the final cost of the project). See Exhibit 2 for detailed results vs. expectations. (Positive)
Dividend growth continues. TPZ declared a $0.33/share dividend for Q3/24 — a ~3% q/q increase and 6% y/y increase (~11% CAGR since 2020). The dividend will be paid on September 27, 2024, to shareholders of record on September 13, 2024. On current strip prices, we estimate TPZ’s 2024 and 2025 dividend payouts at ~69% and 64%, respectively of FCF - both at the low end of the company’s 60% to 90% range (Positive).
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