Credit Suisse raised its estimates but lowered its target price and kept a Neutral rating on Pengrowth Energy Corp. (PGF.TO).
Q2 Results: "Pengrowth has reported operating CFPS of C$0.46, modestly below our C$0.48 and consensus of C$0.50, based on a recent company survey. Weaker gas volumes, NGL pricing and higher heavy oil royalties were only partially offset by a lower realized crude oil hedge loss relative to our forecast. Production averaged 70,958 boe/d (50% gas), a decrease of 4% versus Q1 given a number of operational issues in the quarter. Relative to our 73,500 boe/d forecast, gas volumes were nearly 15 mmcf/d weaker than expected due to extended turnaround activity at Carson Creek, Quirk Creek and Sable."
Guidance and Funding: "Given operational challenges in the quarter and associated activity delays, Pengrowth has revised its annual average production guidance from 74,000-76,000 boe/d to 72,000-74,000 boe/d. Exit rate guidance has also been revised from 77,000-78,000 boe/d to 75,500-76,500 boe/d. With lower forecast production, we now project a funding gap of C$161 million for 2011, inclusive of Pengrowth's DRIP program which now reflects a higher participation rate. We currently assume this funding gap will be absorbed by additional bank debt and forecast net debt to cash flow of 1.9x at year end. While Pengrowth has hedges in place covering ~30% of projected gas volumes for the remainder of 2011, current market pricing below the Credit Suisse forecast suggests a wider funding gap than we currently anticipate."
Estimates & Valuation: "Incorporating Q2 results and revised production guidance, we have updated our estimates for Pengrowth. Our 2011 EPS/CFPS go from C$0.34/1.91 to C$0.50/1.86 while 2012 estimates go from C$0.55/2.14 to C$0.56/2.10. We are keeping our Neutral rating intact at this time but are trimming our target from C$13.00 to C$12.50 based on a slower growth outlook. Our target is based on 7.25x 2012E EBIDAX of C$768 million, a ~10% discount to peers."
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