In a Feb. 11 research note, analyst Christopher Jones reported that Haywood initiated coverage on Altura Energy Inc. (ATU:TSX.V) with a Buy rating and a CA$0.70 per share price target. This implies a projected return of 63%, as the stock's current share price is CA$0.46.
"Altura is a company that warrants closer attention," Jones noted. "We recommend accumulating shares at current levels."
Jones listed and described the investment drivers behind this company, which has "largely flown under the radar" since 2015 and is currently trading below its peers. The list includes Altura's:
1. Performing people. Altura's management and board members are "top tier" and "not your typical junior C suite," Jones described. David Burghardt, the president and CEO, ran Vermillion France for two years. Founding board members include Darren Gee, president and CEO of Peyto Exploration; Brian Lavergne, president and CEO of Storm Resources; and John McAleer, managing director of Palisade Capital. "A strong C suite is an intangible that could have a high impact on share price performance over time as this unique team gains traction with the market," the analyst wrote.
2. Growth potential. The company's growth is forecast at 70% debt-adjusted per share and "ranks strongly relative to peers," Jones commented. Altura reached production of 2,000 barrels of oil equivalent per day in 2018, and with 160 tier 1 future drilling locations, it has "above average growth visibility over the long term."
3. Focus on returns. Management intends "to position the company for multiple years of profitable production and reserve growth" by employing new technology to exploit pools with significant original oil in place and a low recovery profile, Jones relayed. The team aims to grow organically and through acquisition to maximize shareholder returns.
4. Positioning for rising prices. Altura generates "cash flow netbacks that rival that of light oil producers" by effecting cost efficiencies, Jones indicated. At year-end, they were $29 per barrel of oil equivalent. With these strong netbacks, supported by low operating expenses and above average leverage, the company is "well positioned to capitalize on improving oil prices by directing incremental cash flow to further growth opportunities," he added.
5. Multiple expansion potential. Altura looks attractive based on a handful of key metrics. As such, said Jones, "we expect the market to award the stock with a higher multiple as the company earns an audience with further operational execution."
Catalysts to watch for, noted Jones, are Altura's reserve update expected this month, in which Haywood expects to see "material reserve additions and net asset value growth."
Jones concluded, "Altura provides investors with a rare blend of management quality, a solid growth asset, above average operational and financial metrics, and access to capital.[NLINSERT]
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Disclosures from Haywood Securities, Altura Energy Inc., February 11, 2019
Analyst Certification: I, Christopher Jones, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
Other material conflict of interest of the research analyst of which the research analyst or Haywood Securities Inc. knows or has reason to know at the time of publication or at the time of public appearance: n/a. Research policy available here.