Crescent Point Energy Corp.

Crescent Point Energy Corp. (TSX: CPG) is a leading North American oil producer focused on acquiring, developing and holding interests in petroleum and natural gas properties and assets.

Key Highlights:

• Improved performance supported by elevated commodity prices: The company reported higher oil and gas revenue at CAD 1,298.2 million in H1FY21, jumped from CAD 716.5 million in pcp. The growth was driven by the improved production of 134,093 boe/day in H1FY21, up 2% on y-o-y basis, coupled with elevated average selling prices of CAD 60.95/boe, jumped 80% on y-o-y basis.
• Consistent growth in netback: In the recent past, the company reported consistent growth in its quarterly netbacks, which is a key positive as it denotes higher gross profit per barrel. Notably, netback stood near to the pre-pandemic levels, and Q2FY21 netback was recorded as the highest in the last six quarters. The above indicates a revival in operation supported by improved demand dynamics. 

Source: Company Report

• Growth in funds from operation: In H1FY21, the company reported a 55% jump in adjusted funds flows from operations to CAD 650.5 million, supported by higher cash flow from operating activities of CAD 589.2 million, grew 49% on y-o-y basis.

Q2FY21 Financial highlights:

• CPG announced its quarterly results, wherein the company posted oil and gas revenue of CAD 849.2 million, surged from CAD 259 million in pcp. The increase was supported by higher average selling prices (CAD 62.78/boe, soared 167% on y-o-y basis) coupled with increase in production (148,641 boe/day, surged 23% on y-o-y basis).
• Commodity derivative losses were higher at CAD 206.3 million, as compared to a loss of CAD 58.3 million in pcp.
• The quarter was marked by higher operating expense, due to a surge in transportation costs and general & administrative expense, coupled with higher depletion, depreciation & amortization costs. On the flipside, a lower interest expense partially supported the operation.
• Net income stood at CAD 2,143.3 million, as compared to the net loss of CAD 145.1 million in pcp, supported by an impairment reversal of CAD 2,514.4 million.

Income Statement Highlights (Source: Company Reports)

Risks: The income of the company is correlated with commodity prices, and hence, price volatility would dampen the company’s cash flows and margins.

Stock Recommendation: For FY21, the company expects Annual Avg. Production of 130 – 134 mboe/day, which is in line with the current average production for the first half of FY21. Total capital expenditure is expected in between CAD 635 – 660 million, wherein CAD 600 – 625 million is expected to be used as development capital expenditures. On the valuation front, the stock is available at and EV/EBITDA multiple of 2.4x on an NTM basis, as compared to the industry median of 5.3x. Hence, considering the above rationale, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 4.30 on September 10, 2021.

One-Year Technical Price Chart (as on September 10, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Yangarra Resources Ltd.

Yangarra Resources Ltd. (TSX: YGR) is a junior oil and gas company which is engaged in the exploration, development, and production of natural gas and oil with operations in Western Canada. The company has its operations in Central Alberta. The company generates its revenue from the sale of crude oil and natural gas products.

Key Highlights:

• Industry Beating margins: The company commands higher operational efficiencies than its peers. It reported a higher EBITDA margin and operating margin of 77.8% and 55.6% in Q2FY21, as compared to the industry median of 42.6% and 20.6%, respectively. Additionally, the net margin was recorded at 28.4%, as compared to the industry median of 3.8%.
• Improved operating metrics: The company reported consistent growth in its retained earnings despite the lower commodity price scenario, which is a key positive. Moreover, operating netback stood at CAD 26.81/boe in H1FY21, significantly higher than CAD 14.34/boe in pcp. A higher operating net back denotes improved operating performance.
• Rise in realization price: The company’s operations benefitted from improved commodity prices, supported by elevated demand dynamics. Notably, realization price of crude oil and NGL stood at CAD 72.30/bbl and CAD 38.57/bbl, respectively in H1FY21, improved from CAD 44.28/bbl and CAD 15.38/bbl, respectively in pcp.

Q2FY21 Income Statement Highlights:

• YGR announced its quarterly result, wherein the company reported revenue of CAD 27.266 million, jumped from CAD 15.976 million in the previous corresponding period (pcp). The growth was driven by elevated income from crude oil, natural gas and natural gas liquids segments, supported by higher commodity prices.
• Total expenses stood lower at CAD 15.744 million, as compared to CAD 18.780 million in pcp. The decline was supported by lower production expenses and a slide in finance costs.
• The company reported net income of CAD 7.753 million, as compared to the net loss of CAD 2.801 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s performance is directly correlated with the crude oil prices, and volatility in price would dampen the company’s overall performance.

Stock Recommendation: The company reported significant growth in its cash flow from operations and fund flow from operations at CAD 32.353 million and CAD 34.331 million in H1FY21, as compared to CAD 17.381 million and CAD 23.138 million in pcp. The above is an indication of solid operating performance. In a nutshell, the company has not only increased its top line but also managed to reduce its input costs, which has resulted in a strong margin improvement. On the valuation front, the stock is available at EV/Sales multiple of 1.7x on NTM basis, as compared to the industry mean of 2.5x. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 1.36 on September 10, 2021.

One-Year Technical Price Chart (as on September 10, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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.