Eric Nuttall's top picks: June 3, 2022 - BNN Bloomberg

Eric Nuttall’s top picks: June 3, 2022 – BNN Bloomberg

Eric Nuttall, Partner and Senior Portfolio Manager, Ninepoint Partners

Focus: Energy Reserve


Market Outlook:

The world has been plunged into an energy crisis resulting from policymakers’ ignorance of energy and many years of insufficient investment in new productive capacity. Results? A multi-year bull market lasting at least five to six years, driving the price of oil high enough to kill discretionary demand growth while allowing companies to pivot and start investing again in long-term projects.

While fears of a recession are worrying some, we estimate that global GDP must reach nearly zero, something that has happened only three times in recent history (2020, 2009, 1982), for the oil market to reach a state. out of balance. With Russian production likely to decline more significantly in the second half of 2022, and OPEC soon reaching spare capacity exhaustion, we believe oil will have a solid base floor at around $100 WTI and test over $150 WTI in the coming quarters.

At $100 WTI, Canadian Energy stocks are trading at 3.0 times the enterprise’s cash flow value and 24 percent free cash flow return. With nearly all companies committing to maintaining low or no growth and instead returning the majority of free cash flow to investors, we have entered a golden era of starkly high levels of earnings and share buybacks, which in my opinion will result in a reclassification in trading multiples again closer to Historical averages from 6x-8x.

  • Subscribe to our Newsletter of Best Options Market Call on bnnbloomberg.ca/subscribe
  • Listen to the Market Call podcast on iHeartor wherever you get your podcasts

Top Picks:

Eric Nuttall’s top picks

Eric Nuttall, Partner and Senior Portfolio Manager at Ninepoint Partners, discusses his top picks: Meg Energy, Enerplus and Tamarack Valley.

MEG ENERGY (MEG TSX)

MEG Energy, an oil and individual asset producer, this week began a stock buyback with 25 percent of its free cash flow transferred to shareholder returns and committed to returning 100 percent once the final leverage target is reached, which we believe will. Happening mid-2023. With the company trading a 26 percent free cash return at $100 WTI, the company can privatize in just four years with free cash flow, meaning that given 35 years of reserves, investors get 31 years of Free cash flow equivalent to 26% free dividend yield. We think the fair value is 6x EV/CF = $42 = 85 percent up with no value being given for their massive tax losses. We don’t think MEG will be around in a year.

ENERPLUS (ERF TSX)

Enerplus is still hugely wrong, trading at 1.8x EV/CF and a 35 percent free cash flow return. They are actively buying back 10 percent of their shares and will buy back NCI and buy back another 10 percent, while also being able to purposefully increase their dividend payout, and soon consider making a big offer to the issuer. They recently said that 75 percent of free cash flow in 2023 could be returned to shareholders in 2023 and with the asset pack liquidation approaching soon and leverage metrics reached, we are looking at the company to purposefully increase shareholder returns. We use a multiple target of 5x EV/CF = $40 target = 158 percent upside probability.

Tamarack Valley (TVE TSX)

With exposure to some of the most profitable games in North America, TVE is trading at a very attractive 2.4x EV/CF and 27 percent free cash flow company. With leverage metrics soon to be hit, the company has pledged to return at least 50 percent of free cash flow to investors at 75 percent by mid-2023 once the final leverage metric is reached. We believe the fairest multiplier is 5x = $11.20 target price = 110% potential upside.

Previous Picks: May 28, 2021

Eric Nuttall’s past picks

Eric Nuttall, Partner and Senior Portfolio Manager at Ninepoint Partners, discusses his past choices: Whitecap Resources, Baytex Energy and Cenovus Energy.

Whitecap Resources (WCP TSX)

  • Then: $5.73
  • Now: $11.64
  • Yield: 103%
  • Total Return: 108%

Bytex Energy (BTE TSX)

  • Then: $1.84
  • Now: $7.13
  • Yield: 287%
  • Total Return: 287%

Cenovus Energy (CVE TSX)

  • Then: $9.83
  • Now: $30.08
  • Yield: 206%
  • Total Return: 207%

Average total return: 200%

WCP TSX n n s
BTE TSX s s s
CVE TSX n n n



2022-06-03 17:48:44

Leave a Comment

Your email address will not be published.