Canadian Natural Resources Limited
Canadian Natural Resources Limited (TSX: CNQ) is a leading oil and natural gas production company, which has operations across Western Canada, the U.K. portion of the North Sea and Offshore Africa.
Key Highlights:
Source: Company Presentation
Q2FY21 Financial Highlights:
Source: Company Report
Risks: Decline in crude oil and natural prices would dampen the company’s income and profitability. Moreover, failure to implement the cost control strategies in a proper manner might weigh high on the company’s margins.
Valuation Methodology (Illustrative): Price to Cash Flow
Stock Recommendation:
For FY21, the company expects its total production in between 1,190 - 1,260 MBOE/ per day, reflecting a 5% growth from the previous year. Natural gas production is estimated to grow by 12% on y-o-y to 1,620 - 1,680 MMcf/day, while total liquids production is anticipated within 920 – 980 Mbbl/day in FY21. The company expects higher capital expenditure of CAD 3,205 billion for FY21, compared to CAD 2,701 billion in FY20. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like ARC Resources Ltd, Suncor Energy Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 41.84 on August 06, 2021.
One-Year Technical Price Chart (as on August 06, 2021). Source: REFINITIV, Analysis by Kalkine Group
Imperial Oil Limited
Imperial Oil Limited (TSX: IMO) is one of Canada's leading integrated oil companies, which operates in upstream operations, petroleum refining operations, and the marketing of petroleum products.
Key Highlights:
Q2FY21 Financial Highlights:
Source: Company Report
Risks: The company’s income is directly related to the international crude prices, and a volatility in crude prices would affect the overall realization prices and would take a toll on the company’s margins and cash flows.
Valuation Methodology (Illustrative): Price to Cash Flow
Stock Recommendation:
Despite the current economic doldrum, the company paid dividend of CAD 323 million in H1FY21, as compared to CAD 326 million in the previous corresponding period, which suggests a stable cash flow from operations. Moreover, the stock carries a yield of ~3.1%, which looks decent considering the current interest rate environment. We have valued the stock using the Price to CF based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Suncor Energy Inc, EOG Resources Inc etc. Considering the aforesaid facts, we give a ‘Hold’ rating on the stock at the last closing price of CAD 34.15 on August 06, 2021.
One-Year Technical Price Chart (as on August 06, 2021). Source: REFINITIV, Analysis by Kalkine Group
Boralex Inc
Boralex Inc (TSX: BLX) is an electric utility company which operates in the development, construction, and operation of renewable energy power facilities. The group controls a portfolio of electricity-producing plants that utilize wind, hydroelectric, thermal, and solar fuel sources.
Key Highlight:
Q2FY21 Financial Highlights:
Source: Company Reports
Risks: A major chunk of the revenue comes from the wind segment and hence, any adverse weather conditions would impact the company’s operations and might dampen the cash flows as well.
Valuation Methodology (Illustrative): Price to Cash Flow
Stock Recommendation:
With the increase demand in the renewable segment due to climate control initiatives and greenhouse gas emission reduction targets, the company is expecting strong demand for renewable energy from environmentally conscious companies. Notably, the recent acquisition of a majority interest across seven solar power stations in the United States (State of California), which has an installed capacity of 209 MW, would strengthen the company’s position. We have valued the stock using P/CF based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Brookfield Renewable Partners LP, TransAlta Renewables Inc etc. Considering the above-mentioned facts, we give a ‘Hold’ rating on the stock at the closing price of CAD 38.36 on August 06, 2021.
One-Year Technical Price Chart (as on August 06, 2021). Source: REFINITIV, Analysis by Kalkine Group
*The reference data in this report has been partly sourced from REFINITIV.
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