Cost-cutting Synergies to Support Bottom-line:  Crescent Point Energy Corp. (TSX: CPG) is a leading North American oil-producing company which specializes in the production of Crude oil and natural gas etc.

Key highlights:

• The company has revised its capital expenditure plan for 2020 and reduced it by ~35% to tackle the volatility in the oil prices. The group is now expected to spend CAD 700 million to CAD 800 million in the year.
• The group is focusing on cost efficiency and planning to reduce its variable expense to provide a cushion to the bottom-line.
• The group is also focusing on reducing the debt exposure to strengthen the balance sheet. The group has revised its quarterly dividend to CAD 0.01 per share which will provide additional flexibility in capital allocation.

Financial Highlights: For Q4FY19, oil and gas sales stood at CAD 729.3 million, as compared to CAD 791.6 million in the previous corresponding period. Lower average daily production owing to divestments of Uinta Basin and Southeast Saskatchewan was the primary driver for the lower sales. The company reported higher funds flow from operations of CAD 418.4 million, up from CAD 337.3 million in the previous corresponding quarter. Adjusted net earnings stood at CAD 49.9 million, as compared to a loss of CAD 16.3 million in Q4FY18. Higher adjusted net earnings were driven by lower operating, general and administrative and interest expenses. The company reduced its net debt by CAD 594.7 million to CAD 2.77 billion while allocated CAD 343.4 million for total development capital expenditures.

FY18-FY19 Quarterly Highlights (Source: Company Reports)

Valuation Methodology: P/CF Based Relative Valuation

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation: The stock of CPG is quoting at CAD 1.48 with a market capitalization of ~CAD 784.57 million. The stock was hammered during the recent past, witnessing a decline of ~75.25% and ~70.28% in the last three months and one year, respectively. The stock made a sharp recovery during the last five trading session and outperformed the index and sector by ~30%. The crude oil and gas prices have seen severe corrections in the recent past primarily due to the oversupply across the global markets followed by a lower demand scenario due to COVID 19 pandemic. As uncertainty persists across the economy, investors went for panic selling strategy, which leads a big-time price erosion for oil & gas stocks. During FY19, the company took pragmatic steps to lower down its debt component, which would eventually result in cushioning the bottom-line by lower interest costs. Moreover, the company has opted for abbreviating its capital expenditures by ~35% and implemented several cost efficiencies measures to arrest the current volatility. Going forward, we expect a gradual recovery in the oil price and a pickup in demand which in turn bode well for the oil and gas companies. We have valued the stock using the P/CF based relative valuation method. We have taken peers like Whitecap Resources Inc (TSX: WCP), Seven Generations Energy Ltd (TSX: VII), Enerplus Corp (TSX: ERF) etc. and arrived at a target price with lower-double digit upside (in% terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 1.48 as on April 08, 2020.

CPG One-Year Daily Price Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.