PGF : TSX : C$6.82
PGH : NYSE
BUY
Target: C$8.75
COMPANY DESCRIPTION:
Pengrowth Energy Corporation is an intermediate, dividend paying
E&P focused in the Western Canadian Sedimentary Basin.
Pengrowth is listed on the TSX & NYSE under the symbols “PGF”
and “PGH” respectively.
All amounts in C$ unless otherwise noted
Energy — Oil and Gas, Exploration and Production
SECURING MARKET ACCESS
Investment recommendation
Pengrowth released second-quarter results which solidly beat on
production and matched cash flow expectations. Key highlights of its
release include 1) the announced transportation services agreement
with Husky Energy to gain market access for its Lindbergh bitumen
volumes, 2) it has spent/committed 90% of costs on Phase I, 3) it
remains on time/budget at Lindbergh and 2014 guidance was reiterated,
and 4) results from its Cardium program continue to improve. We
continue to recommend the stock for an attractive dividend yield, solid
pilot results at Lindbergh, and a meaningful CFPS growth profile. Our
BUY rating and C$8.75 target price remain unchanged based 0.9x NAV
and a 2015E EV/DACF multiple of 8.2 times.
Investment highlights
Q2 in line. Production of 73,823 boe/d solidly beat CG/consensus of
71,735/72,236 boe/d. CFPS of $0.23 generally met our estimate of
$0.23 and consensus of $0.24. Full year 2014 guidance was maintained
except for a slight uptick in G&A expenses.
Securing market access. It announced a transportation services
agreement with Husky Energy (HSE:TSX, BUY rated covered by Phil
Skolnick) which accesses its Alberta Gathering System and includes a 10
year take-or-pay provision (with option for future growth at Lindbergh).
Pengrowth will develop a 15 km pipeline (and meter station) in Q2/15 to
facilitate the tie-in, the cost of which was included in its original budget
for Phase I. This agreement allows PGF numerous market access
options at Hardisty including rail and connectivity to export its bitumen
(WCS type pricing) along several key export pipelines.
Valuation
Pengrowth currently trades at a 0.7x multiple to CNAV, 7.1x EV/DACF
multiple, and $75,100/BOEPD based on our 2015 estimates, versus peer
group averages of 0.8x CNAV, 6.2x EV/DACF, and $78,200/BOEPD.
