Tourmaline Oil Corp.

TOU Ready to Ride the Growth Wave: Tourmaline Oil Corp. (TSX: TOU) is a Canadian energy company engaged in the acquisition, exploration, development, and production of natural gas and crude oil in the Western Canada Sedimentary Basin. As on 8 July 2020, the market capitalization of the company stood at ~CAD 3.37 billion.

Quarterly Performance (For the Period Ended March 2020): During the first quarter ended 31 March 2020, the company reported record production of 308,349 boepd, reflecting an increase of 5% on the pcp. In the same time span, the company has reported a decline of 15% in operating costs to CAD 2.97/boe and has reduced its 2020 EP capital expenditure budget to a maintenance capital level of CAD 800 million from the originally-planned CAD 925 million.

Quarterly Financial Highlights (Source: Company Reports)

Guidance: The company seems well-positioned to deliver strong year-over-year cash flow and production growth in 2021. It expects full-year average production of 305,000 – 310,000 boepd, yielding estimated full-year cash flow of CAD 1.0 billion. The company also estimates to have a CAD 1.1 billion of available liquidity by the end of the year on aggregate credit capacity of CAD 2.875 billion. TOU anticipates its 2020 exit Net Debt/Cash Flow of 1.8x.

Key Risks: The investment in TOU is subject to inherent risks and uncertainties which include the risks associated with the oil and gas industry, operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertain impacts of COVID-19.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is focusing on optimizing production and reducing field costs. It has diversification to the US and other hubs and is providing additional flexibility in a very volatile liquid-pricing environment. The stock of TOU gave a return of 18.68% in the past three months and is trading slightly above the 52-week trading range. We have valued the stock using the price to cash flow multiple based illustrative relative valuation method and have arrived at a target upside of lower double digit (in percentage terms). Considering the current trading levels, attractive returns in the past three months, positive guidance, and decent operational performance, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 12.45, down by 3.5631% on 8 July 2020.

TOU Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

TC Energy Corporation

Strong First Quarter Results: TC Energy Corporation (TSX: TRP) operates as an energy infrastructure company, consisting of pipeline and power generation assets in Canada, the United States, and Mexico. As on 8 July 2020, the market capitalization of the company stood at ~CAD 53.31 billion.

Quarterly Performance (For the Period Ended 31 March 2020): Despite the unprecedented time with the COVID-19 pandemic, the diversified portfolio continued to perform well. While capital markets conditions have been softer, the company has enhanced its liquidity by over CAD 9 billion. During the quarter, the company reported a comparable EBITDA of CAD 2.5 billion and net income attributable to common shares of CAD 1.15 billion. In the same time span, the company generated CAD 2.1 billion from funds and reported net cash by operations of CAD 1.7 billion. The decent financial and operational performance of the company enabled the Board to declare a quarterly dividend of CAD 0.81 per common share.

Key Risks: With the restrictions imposed due to the global pandemic, the economic environment has been highly volatile, resulting in softer market conditions. The degree to which COVID-19 has had a transitory effect on the company’s operations and growth projects, is dependent on future developments, policies and actions which remain highly uncertain. The performance of the company is subject to certain risks and uncertainties, including market risk, interest rate risk and credit risk. These risks could cause actual results to differ from the anticipated results. Investors are advised not to place any undue reliance.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Combined with the company’s predictable and growing cash flows from operations, cash on hand, substantial committed credit facilities, and various other financing levers, the company seems to be well-positioned to continue to fund its obligations, capital program and dividends. As per TSX, the stock of TRP is inclined towards its 52-weeks’ low level of CAD 47.05, proffering a decent opportunity for the investors to enter the markets. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered Enbridge Inc, Fortis Inc, New Jersey Resources Corp etc. as peers. Considering the current trading levels, decent financial performance, growing cash flows and returns in the past one month, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 56.73, down by 0.2637% on 8 July 2020.

TRP Daily Technical Chart (Source: Refinitiv, 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.