With oil and gas prices continuing to rise “materially,” National Bank Financial analysts Travis Wood and Dan Payne reiterated their bullish stance on the Canadian energy sector, expecting outperformance to continue.
In a research report released Thursday, they said they remain constructive on both crude oil and natural gas supply/demand fundamentals, raising their 2022 price forecast for WTI by 12 per cent to US$106.25 per barrel and Brent by 10 per cent to US$109.25. Their 2023 estimates rose by 4 per cent each to US$93.75 and US$98.50. For NYMEX, their projections jumped 38 per cent and 45 per cent, respectively to US$6.75 and US$5.80 per thousand cubic feet.
That led them to hike their 2022 and 2023 total cash flow estimates are up by 21 per cent and 15 per cent, respectively, driving an increase of 16-per-cent on average to target prices for stocks in their coverage universe.
“Energy, and more specifically the E&P group, continues to lead the pack in the S&P/TSX Composite Index as the top-performing sector, with our entire coverage hitting 52-week highs in recent weeks (and a handful even hitting all-time highs),” they said. “Given how tight supply fundamentals are, we believe this relative outperformance is sustainable, even as we consider the prospect of an inflationary/rising rate environment, acknowledging that energy has historically outperformed during inflationary periods. Even with the recent market sell-off, the setup remains compelling, with our coverage group now trading, on average, at 3.1 times 2023 estimated EV/DACF [enterprise value to debt-adjusted cash flow] (and a FCF yield of more than 20 per cent).”
For large and mid-cap companies, their changes include:
- Advantage Energy Ltd. ( “outperform”) to $15 from $12.50. Average: $13.79.
- ARC Resources Ltd. ( “outperform”) to $32 from $24. Average: $24.39.
- Birchcliff Energy Ltd. (BIR-T, “outperform”) to $15 from $12.50. Average: $13.46.
- Baytex Energy Corp. ( “outperform”) to $10.50 from $9.50. Average: $8.89.
- Crescent Point Energy Corp. ( “outperform”) to $23 from $20. Average: $14.68.
- Enerplus Corp. ( “outperform”) to US$29 from US$24. Average: $24.43 (Canadian).
- Freehold Royalties Ltd. ( “outperform”) to $22 from $19.50. Average: $20.14.
- Kelt Exploration Ltd. (, “outperform”) to $11 from $10. Average: $10.15.
- Nuvista Energy Ltd. (“sector perform”) to $19 from $14.50. Average: $15.96.
- Ovintiv Inc. ( “outperform”) to US$115 from US$90. Average: US$67.
- Peyto Exploration & Development Corp. ( “outperform”) to $23 from $18. Average: $18.25.
- Pipestone Energy Corp. ( “sector perform”) to $7.50 from $7. Average: $7.33.
- Paramount Resources Ltd. (POU-T, “outperform”) to $50 from $45.50. Average: $43.75.
- Prairiesky Royalty Ltd. (, “sector perform”) to $27 from $24. Average: $22.90.
- Spartan Delta Corp. (, “outperform”) to $22.50 from $18. Average: $18.20.
- Tourmaline Oil Corp. ( “outperform”) to $95 from $75. Average: $83.12.
- Topaz Energy Corp. ( “outperform”) to $32 from $27.50. Average: $28.67.
- Vermilion Energy Inc. (“outperform”) to $52 from $53. Average: $36.54.
- Whitecap Resources Inc. (“outperform”) to $20 from $17.50. Average: $15.02.
“Take your pick of the litter, but our preferred names remain CPG, CVE, HWX, TVE and WCP for oil exposure, and ARX, BIR, SDE and TOU for gas exposure,” he said.