|
|
Oil and Gas Discussion BB
|
|
||
Re: YGRCIBC Initiate Coverage Yangarra Resources Ltd. Lock, Stock And Two-mile Smoking Barrels Our Conclusion As of March 13, we are initiating coverage of Yangarra Resources with an Outperformer rating and a 12- to 18-month price target of $7.00. Yangarra has been a juggernaut in the Canadian oil space over the past couple of years, demonstrating organic production per share growth of ~190% since Q3/16 while delivering some of the highest returns on capital in our coverage group. Yangarra looks set to begin another strong growth campaign this year and, in our opinion, the stock's currently discounted valuation represents an excellent entry point. Implications One of the most exciting tenets of Yangarra's investment proposition is, in our view, the opportunity for investors to benefit through a company that continues to create additional shareholder value through innovation. Yangarra has earned an audience over the past two years, delivering impressive growth and profitability driven by pioneering new completion methods in the Cardium that have unlocked value from a previously undeveloped part of the play. In that vein, Yangarra's plans for the next 18 months look like more of what we have come to expect from the company as it sets its sights on hitting 15,000 Boe/d in 2019, which implies ~90% production growth from December 2017. This growth forecast is good for top spot amongst the oil-weighted peers that we cover and is complemented by our expectation for a top-decile return on investor capital generation. Valuation Trading at 3.9x 2019E EV/DACF on recent strip pricing, Yangarra has a discounted valuation in our oil-weighted small- and mid-cap coverage universe (4.9x). However, given our expectations for above- average performance of factors that tend to garner stronger valuations (including peer-leading debt-adjusted production growth and top-decile returns on investor capital), we believe Yangarra is deserving of an expanding valuation as the Street prices in deliverance on these metrics. Our $7.00 price target is based on a 2019E EV/DACF multiple of 5.6x, which is in line with a peer median valuation multiple of 5.7x |
return to message board, top of board |