Opinions
Dennis da Silva
Crescent Point Energy Corp
CPG-T
HOLD
Sep 28, 2018
Stock price when the opinion was issued
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Recent M&A not being rewarded by market. Investors would rather return of capital, rather than buying new assets. Out of favor stock. OVerall, demand for energy rising. Strong business with good management team. Current share price very cheap. Good for long term investors who are patient. Generating strong cash flow, with ability to pay down debt.
Very misunderstood and still perceived as management drilling 100 barrel per day wells in SE Saskatchewan. Rather, a lot has changed, repositioned into the Duvernay and Montney regions with two decades of high-quality inventory now, drilling some of the best wells ever. They will return 60% of their free cash flow to investors and are actively buying back shares. Are paying down debt more next year. He targets $19.28. Lots of upside.
(Analysts’ price target is $13.46)The CPG today is not the CPG of old. It used to have a lot of low-grade wells and bought a lot of companies. Now, they have a serious drilling inventory in the Montney and Duvernay, economic ones in the latter. The board is now conservative and respected. they have more than enough . He projects 3.5x free cash flow inventory, 60% returns to shareholders and the rest to the bank to pay off purchases. In a year or so, that ratio should be 80/20. Meanwhile, are buying back shares and continue drilling profitable wells. He targets around $20. It ticks all the boxes.
(Analysts’ price target is $14.63)
He has always felt the crux of the issue was around the quality of management. Serial issuer of stocks and acquisitions – they took it too long too far. He thinks half of the 185,000 boed could be up for sale to help deleverage the balance sheet. They have strong assets, but he wondered how many years of inventory were necessary. The market has not given the new management team the benefit of the doubt. It is at all time lows in terms of valuation.