Connacher Oil & Gas Slightly Higher as Credit Suisse Admits Q3 Optimism

Credit Suisse lowered its estimates and target price, but kept an Outperform on Connacher Oil & Gas (CLL.TO) ahead of Q3.

Expecting Higher Q3 Cash Flow: "Despite a volatile macro environment and a month left to go in the current quarter, we are expecting Connacher to post higher cash flow in Q3 both Y/Y and Q/Q. We are forecasting operating cash flow of C$21.5 million (C$0.05/sh) for Q3 vs. C$15.2 million (C$0.04/sh) a year ago and C$15.9 million (C$0.04/sh) in Q2. While there are risks to our view, we don't see a situation at this time in which Connacher would post lower comparable cash flow."

Liquidity Appears Ample: "Given our cash flow expectations, Connacher's liquidity position appears ample for now. We currently assume Connacher will end 2011 with C$60 million of cash on hand, inclusive of asset sales. Should asset sales not occur, Connacher's C$100 million bank line could be utilized in the event of a funding shortfall. For 2012, we believe management has the option to spend within cash flow. Our current C$120 million capex estimate for 2012 anticipates growth capital beyond sustaining and maintenance requirements which could be in the C$60-70 million range."

JV Could Unlock Value: "Successful negotiation of a JV to advance the proposed development of an additional 24,000 b/d of bitumen productive capacity at Great Divide could unlock long-term value, in our opinion, as expansion is otherwise constrained by Connacher's own financial capacity. A JV could facilitate the ordering of long lead items late this year and construction start by H212, with first bitumen production by the end of 2013."

Lowering Estimates & Target: "Incorporating recently reported financial results for Q2 that were weaker than expected, as well as revised full year guidance, including a slower ramp up at Algar, we are lowering our estimates for Connacher. Our 2011 EPS/CFPS go from (C$0.04)/0.15 to (C$0.15)/0.10 while 2012 go from C$0.04/0.27 to C$0.00/0.23. Our 2013 EPS estimate goes to C$0.08 from C$0.13. Our revised target of C$1.80 (from C$2.00) equates to 8.5x 2012E EBIDAX of C$185 million."

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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