VBIN's oil stock thread.

[EricL]

Research note on CPG.

Quote:Absolute Debt Reduction Results in Materially Improved Balance Sheet: Since the current CEO took charge in 2018, absolute net debt has been reduced by approximately half. Given our significant FCF forecast through 2022, we forecast YE-2022E D/CF of 0.7x (vs. 1.4x at YE-2021). In our view, as D/CF falls below 1.0x in H1/22E, more FCF could be allocated to shareholder returns.

Further Shareholder Returns (Dividends/Buybacks) Likely in 2022+: In 2021, Crescent Point announced two dividend increases, which brought the yield to ~2.5% from nearly nil (based on recent increase payable in April). In 2022E, its current dividend only consumes 5% of CF and 11% of FCF. This leaves significant unallocated FCF for incremental return of capital announcements. For example, if CPG was to return 50% of FCF to shareholders, we estimate this would equate to 10% of the current market cap, while still allowing for $426mm of debt reduction throughout the year.

Near-term Catalysts Have Power to Create Value and Transform Perceptions: Recall CPG bought the Duvernay asset from Shell in February 2021 and subsequently announced a farm-in arrangement with an undisclosed counterparty in Q3/21. To-date, the company has disclosed that capital cost of its new Duverney wells drilled thus far came in ~$1.5mm below expectations (despite more intensive completions). Looking ahead, Crescent Point should have three Duverney wells on stream by the end of Q1, and results from these wells should complete the economics picture and, in our view, materially de-risk its move into the play.

Beyond simply providing well results, strong oil rates from the Duvernay should:

1) contribute to strong flush production in Q1/22E and
2) provide the company with a large oilweighted asset with high rate wells in a play with scale.

TD Investment Conclusion: We encourage investors to revisit CPG, as we believe it offers a strong conventional oil-weighted asset base, material FCF, comfortable leverage, a sustainable base dividend (with room to grow), and near-term Duvernay catalysts at a low valuation. For these reasons, we are increasing our rating to ACTION LIST BUY (from Buy).
Price Target: $12/Plus