Analyst Actions: Credit Suisse Maintains "Outperform" Rating on PetroBakken Energy
PetroBakken Energy Ltd. (PBN.TO)
CP: C$ 12.38
TP: C$ 18
CAP: C$ 2.3b
Spin A +ve, Financial Flexibility Still An Issue
Spin-out Could Remove Valuation Overhang: PetroBakken has announced its participation in a corporate reorganization that will see shareholders of Petrobank (PetroBakken's parent) receive Petrobank's 57% interest in PetroBakken. The net effect will be a significant increase in PetroBakken's publicly traded float and possible removal of the valuation overhang related to trading liquidity and more importantly Petrobank's control block.
However, The More Things Change... : The reorganization will not result in any changes to PetroBakken's existing Board and senior management, nor will it alter the company's strategy, assets, and dividend policy. While shares outstanding remain constant as well, the reorganization will affect PetroBakken's funding position in 2013 as Petrobank currently participates 100% in the DRIP program. While a budget is not likely until the new year, reduced financial flexibility could result in capex conservatism and slower than expected growth, especially against a backdrop of lower oil prices and considering the company's hedge position that is made up of wide collars.
Capital Efficient Growth Is Still The Challenge: PetroBakken still needs to prove to the street that it can grow in a capital efficient manner and execute well on growth plans. The company's recent operational update fell short in terms of providing confidence in field operations and exit rate guidance which still stands at 52-56,000 b/d. As such, we believe the company's first ever Investor Day on November 9 in Calgary will be important from the standpoint of instilling confidence.
Valuation: Our current C$18 target equates to 6.0x 2013E EBIDAX, a ~25% discount to Canadian mid-cap peers given weaker capital efficiency and higher balance sheet leverage.
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