CIBC World Markets Inc. analysts Jamie Kubik, CPA, CA and Chris Thompson, P.Geo. commented in a September 1 research note that Advantage Energy Ltd. (AAV:TSX) had recently announced an increase in its FY/21 capital spending guidance.
CIBC World Markets indicated that Advantage Energy stated previously that an increase may be coming when it released it Q2/21 earnings, which CIBC views as a very logical move going into the higher demand winter season followed by increases in field activity across the basin in spring.
The analysts wrote that the tight rig market is keeping Advantage's drilling rig active with no let-up in sight. Thus, CIBC stated that it is raising its FY/22 CFPS estimates to $1.56 from $1.50 prior, while keeping its FY/21 estimates unchanged.
The report listed that Advantage increased its FY/21 spending guidance by $20 million to a midpoint of $145 million, which was greater than CIBC's prior estimate of $138 million and street estimates of $131 million. The analysts asserted that "if AAV hits the top end of its spending target for FY/21, recent strip pricing points to the company generating in excess of $100 million in free cash flow (FCF) in FY/21 and nearly $200 million in FY/22." The CIBC report noted if those levels are achieved the result would be FCF yields of 12% in FY21 and 20% in FY/22.
The analysts noted that no adjustments to FY/21 production guidance have been made but the higher capex spending planned for drilling three wells at Wembley and completing four wells at Glacier in Q4/21 will be accretive for production in FY/22 by ~2 Mboe/d.
CIBC listed that Advantage is maintaining its outlook for FY/21 production guidance of 48-51 MBoe/d, compared to CIBC's estimate of 50.6 MBoe/d and street consensus estimates of 50.3 MBoe/d. The report mentioned that Advantage expect FY/22 production will now be in the range of 53-56 Mboe/d, which represents a 10% year-over-year growth in production.
Advantage Energy is a low-carbon energy producer headquartered in Calgary, Alta. The company is primarily focused on developing its high quality Montney gas resources at the Glacier carbon capture and sequestration (CCS) asset, Progress, Valhalla and Wembley. The firm additionally owns a 400 MMcf/d gas processing facility at Glacier.
CIBC commented that it believes that the introduction of modular carbon capture and storage (MCCS) from its Entropy Inc. affiliate should help the stock to trade at a premium in relation to its peers.
CIBC World Markets advised that it rates Advantage Energy Ltd. as an "Outperformer" and is raising its 12–18-month price to CA$7.00 per share, up from its previous target of CA$6.00. The company's shares trade on the Toronto Stock Exchange under the symbol AAV and closed for trading at CA$6.10/share on September 3, 2021.
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Disclosures from CIBC, Advantage Energy Ltd., Sept. 1, 2021
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