Tourmaline Oil Corp.

Strong Operating and Financial Results: 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 10 August 2020, the market capitalization of the company stood at ~CAD 4.40 billion.

Quarterly Performance (For the Period Ended 30 June 2020): During the quarter ended 30 June 2020, the company produced 299,369 boepd of oil equivalent, reflecting an increase of 7% on the pcp. In the same time span, the company reported the low-cost, profitable nature of Tourmaline's core EP business and incurred operating costs of CAD 3.06/boe, down 12% from Q2 2019 costs of CAD 3.47/boe. In the same time span, the company generated net earnings of CAD 20.1 million and cash flows of CAD 225.2 million on EP capital spending of CAD 95.6 million. The company reduced its net debt by CAD 148 million from 31^st March 2020, to CAD 1.69 billion as at 30^th June 2020.

Quarterly Financial and Operational Activities (Source: Company Reports)

Guidance: The company has provided guidance and expects production in the range of 295,000 to 300,000 boepd in the third quarter of 2020 and production in between 320,000 to 325,000 boepd in the fourth quarter. The second half EP program will drill ~79 new wells and complete ~99 wells. The company expects to release Q3 2020 results on 3^rd November 2020.

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; and the uncertain impacts of COVID-19.

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

EV/EBITDA 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 diversified into the US and other hubs and is providing additional flexibility in a liquid price environment. The stock of TOU gave a return of 37.07% in the past three months and a return of 19.46% in the past one month. It is also trading close to its 52-weeks’ high of CAD 16.77. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation and have arrived at a target upside of low double digit (in percentage terms). Considering the current trading levels, decent returns in the past one month, positive guidance, and decent operational performance, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 16.27, down ~0.25% on 10 August 2020.

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

Parkland Corporation

Improved Liquidity and Fully Funded Capex: Parkland Corporation (TSX: PKI) distributes and markets fuels and lubricants. As on 10 August 2020, the market capitalization of the company stood at ~CAD 5.90 billion.

Quarterly Performance (For the Period Ended 30 June 2020): During the second quarter ended 30 June 2020, adjusted EBITDA of the company stood at CAD 191 million and net earnings attributable to shareholders were CAD 32 million. In the same time span, fuel and petroleum product volume decreased by 14%. During the quarter, the company reported improved liquidity to CAD 1.6 billion and total funded debt to credit facility EBITDA ratio of 2.7x. In the Canada segment, the company witnessed an increase of 30% in EBITDA driven by strong per unit fuel margins and convenience store traffic and delivered 18^th consecutive quarter of C-Store same-store sales growth. In the same time span, Canadian Commercial team secured new organic business wins, including multi-million litre cardlock customers. During the quarter, the international segment delivered a strong quarter despite an extensive COVID-19 impact in the Caribbean and South American regions.

Quarterly Financial Highlights (Source: Company Reports)

Guidance: The company is expecting modest increase of CAD 50 million in 2020 capital expenditures to an expected total of CAD 325 million. It will continue to pursue high-quality growth projects that extend its supply advantage. The company expects to release Q3 2020 results on 3^rd November 2020.

Key Risks: The company is exposed to a variety of risks, including general economic, market and business conditions, including the duration and impact of the COVID-19 pandemic; ability to execute its business strategies; industry capacity; competitive action by other companies; refining and marketing margins; and the ability of suppliers to meet commitments.

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

EV/EBITDA 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 reported strong financial and operating performance and delivered solid margins, won new business, and successfully managed its cash flow by reducing costs and controlling capital expenditures. The solid performance of the company demonstrates the flexibility and resilience of its diversified business model. As per TSX, the stock of PKI is trading above the average 52-week low and high trading levels. The stock of PKI gave a return of 17.44% in the past three months and a return of 12.25% in the past one month. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target price offering an upside of low double-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months, improved liquidity, and growth opportunities, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 39.59, up by 3.42% on 10 August 2020.

PKI 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.