Tourmaline Oil Corp.

Tourmaline Oil Corporation (TSX: TOU), is a Canadian energy company engaged in natural gas and crude oil acquisition, exploration, development, and production in the Western Canada Sedimentary Basin. The company produces light and medium crude, natural gas liquids, conventional and shale natural gas. 

Why Should Investors Book Profit?

• Crude is likely to be volatile in the near term: Crude oil prices have been trending lower for the previous two days, extending a fall that began on July 6, when WTI hit its highest level since the peak of 2018. This comes following a continuing disagreement among OPEC+ members about the status of supply limitations eased in August. We anticipate crude would continue to trade in a turbulent manner until additional progress from OPEC+ countries, particularly between Saudi Arabia and the United Arab Emirates, is observed. Furthermore, we anticipate that oil prices might spike due to supply limitations or plummet, if member nations opt to release crude on their own.
  

• Trading at higher valuations: Despite solid financial performance and consistent improvement in the financial profile of the company, the shares are overvalued as compared to the industry. Below table reflects that the stock is trading at higher multiples compared to Industry median on many fronts.

• Stock price is likely to consolidate: The stock has rallied handsomely in the past 1-year, on the back of a strong rally in the crude oil along with robust business operations. Since, the company’s revenues are highly correlated to the oil prices, any adverse movement in the oil prices would impact in the TOU stock prices as well. Furthermore, on the back of current tussle between OPEC+ members, prices are likely to correct from or consolidate at current level.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation

Despite a strong rebound in oil prices, demand concerns remain due to a recurrence of COVID-19 Delta variant cases in various regions of the world, and a new round of travel restrictions and lockdown announcements might put downward pressure on oil prices in the immediate term. Oil has a long history of significant fluctuations in price and is mostly controlled by a cartel of oil-producing countries. The company's revenue is tightly tied to crude oil prices, and price fluctuation would have an impact on the company's financial performance. We have valued the stock using EV to Sales based valuation method and arrived at a price offering a lower double digit downside potential (in percentage terms). Therefore, based on the above rationale and valuation we recommend a “Sell” rating on the stock at the closing price of CAD 34.24 on July 07, 2021. We have considered ARC resources, Crescent Point Energy Corp, Parex Resources Inc, etc., as a peer group for comparison.

One-Year Technical Price Chart (as on July 07, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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