In a June 11 research note, analyst Jamie Kubik reported that CIBC raised its target price on Tourmaline Oil Corp. (TOU:TSX) to CA$40 per share from CA$35. In comparison, Tourmaline's current share price is about CA$31.91.
Kubik explained that CIBC raised its target for two reasons. One is that it expects Tourmaline's cash flow to increase in 2021 and 2022 due to the company's acquisition of Calgary-based Black Swan Energy. The other is to reflect the recent increase in strip commodity pricing.
The analyst discussed the Black Swan acquisition, pointing out the ways it benefits Tourmaline, also headquartered in Calgary. It affords the company high-quality assets. The transaction complements Tourmaline's operations and existing position in northern British Columbia's Montney formation, thereby providing synergies. Also, it solidifies Tourmaline's presence there.
"We expect the development formula from Tourmaline will enhance economic returns on the assets moving forward," Kubik added. "Management estimates current production of 50 MBoe/d from the assets, which computes to ~$22,000/Boe/d and an implied cash flow multiple of ~4.5x 2022E on strip."
Kubik also highlighted that Tourmaline is paying a reasonable price for Black Swan. The total consideration is $1.1 billion, including 26 million Tourmaline shares "and the assumption of $350MM (maximum) of net debt."
The "purchase price screens as being slightly accretive to our pre-deal metrics and provides material long-term runway in a key area of the basin," Kubik wrote.
As for Tourmaline's financial situation, Kubik noted, 2021 capital spending is expected to be $70 million higher than the original estimate of $1.19 billion, but debt is low.
"Although we do see the Black Swan hedge book weighing down cash flows somewhat in 2022, our cash flow expectation increases on the back of the transaction for 2021 and 2022, and we see the 6.25% dividend increase as being appropriate given Tourmaline’s superior financial position. Kubik, its 6.25% dividend increase is warranted," Kubik wrote.
CIBC has an Outperformer rating on Tourmaline.
[NLINSERT]Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Disclosures from CIBC, Tourmaline Oil Corp., Earnings Update, June 11, 2021
Analyst Certification:
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.
Potential Conflicts of Interest:
Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets Corp./Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers.
In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets Corp./Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon.
Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.
CIBC World Markets Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that CIBC World Markets Inc. may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Important Disclosure Footnotes for Tourmaline Oil Corp. (TOU.TO)
• 2a These companies are clients for which a CIBC World Markets company has performed investment banking services
in the past 12 months: Tourmaline Oil Corp.
• 2e CIBC World Markets Inc. has received compensation for investment banking services from these companies in the
past 12 months: Tourmaline Oil Corp.
• 2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from
these companies in the next 3 months: Tourmaline Oil Corp.
For important disclosure footnotes for companies mentioned in this report that are covered by CIBC World Markets Inc., click here: Disclaimers & Disclosures.
