Crescent Point Third Quarter Results: A Growth Play at a Value Price (NYSE:CPG)

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Oil and gas exploration and production company. Rising point energy (New York Stock Exchange: CPG) had some interesting developments when it revealed financial results covering the third quarter of its fiscal year 2022. In addition to posting strong cash flows, management updated shareholders on repurchase of shares and declared a special dividend. On top of all this, the company also gave investors an idea of ​​what fiscal 2023 is likely to look like, and also provided its own guidance for fiscal 2027. While this space can be incredibly volatile, stocks are priced incredibly low and the company’s leverage also appears low. For those who don’t mind the volatility that oil and gas prices bring, I’d say the stock has significant upside potential, leading me to rate the company a solid “buy” at this point.

A necessary revelation

For the purposes of this article, all references to ‘$’ or the word ‘dollar(s)’ shall refer to Canadian dollars, not US dollars, unless otherwise specified. And even then, each instance will refer to that singular instance only.

really great results

So far, fiscal 2022 has been a positive one for many companies in the energy space. The same can be said of the shareholders who own said shares. But not all quarters have been the same. In this last quarter, the third quarter of fiscal year 2022, Crescent Point Energy released some really impressive data for shareholders to consider. Consider, for example, the income reported by the administration to pay. During the quarter, sales totaled $1.16 billion. That was higher than the $636.4 million reported in the same period last year. For those unfamiliar, revenue from a company like this is a bit tricky as it involves not only revenue earned from oil and gas sales and other income, but also deducts royalties and accounts for profits and losses thereon. of basic products.

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historical finances

Author – SEC EDGAR Data

The company’s increased revenues also brought a significant improvement in profitability. Net income for the quarter was $466.4 million. That’s more than the $77.5 million reported in the same period last year. However, even more important would be cash flow. Operating cash flow came in at $647 million for the quarter. That compares to $414.2 million reported in the third quarter of 2021. Meanwhile, EBITDA for the quarter was $896 million. That compares favorably to the $411.1 million reported last year. Another important metric that management keeps track of is known as excess cash flow. This is defined as free cash flow minus certain other items, such as payments for lease obligations and decommissioning expenses. During the quarter, this metric totaled $233.7 million. That was up from the $201.5 million reported a year earlier. This number would have been higher had it not been for the fact that capital expenditures saw a fairly significant increase year over year, from $198.1 million to $324.2 million.

historical finances

Author – SEC EDGAR Data

From a purely valuation perspective, we need to figure out what the rest of fiscal 2022 will look like. We already know that for the first nine months of the year, the company generated $1.6 billion in operating cash flow, $1.91 billion in EBITDA, and excess revenue. cash flow of $900.8 million. These numbers compare to the $1 billion, $1.01 billion and $606 million, respectively, generated in the same period last year. Interestingly, management hasn’t provided much guidance for the last quarter. But some estimates I made based on what management disclosed for the rest of the year indicate that operating cash flow should be about $2.25 billion, EBITDA should be about $3.93 billion, and excess cash flow should be be approximately $1.26 billion.

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Cash Flow

Author – SEC EDGAR Data

While management hasn’t provided much information for the rest of the year, they have been fairly transparent when it comes to fiscal year 2023. During that year, the company’s production should average between 134,000 and 138,000 boe (barrels of oil equivalent). per day. That’s above the midpoint guidance for this year of 132,000 boe. But this will require additional capital expenditures, totaling between $1 billion and $1.10 billion for the year, on top of the $950 million in development capital expenditures forecast for 2022. For this year, the Company anticipates another $45 million in capital expenditures associated with capitalization administrative costs. By 2023, this number will drop slightly to $40 million. However, the company has provided an estimate of excess cash flow for the coming year of between $1.1 billion and $1.5 billion. A reasonable estimate for operating cash flow would be $2.39 billion. And my own estimate as far as EBITDA is concerned is about $4.11 billion.

multiples trading

Author – SEC EDGAR Data

Based on these figures, the company is trading at an adjusted operating cash flow multiple price for this year of 2.7 and an excess cash flow multiple price of 4.8. The EV to EBITDA multiple is even lower at 1.8. Meanwhile, going forward, these multiples would be 2.5, 4.6, and 1.7, respectively. All things considered, these numbers are very low in absolute terms and even lower than many of the other oil and gas exploration and production companies that I cover in my Marketplace service. And if management is right about the future, the stock could become even cheaper. You see, the current guidance for next year assumes WTI crude prices of between $75 and $85 a barrel. As long as prices are kept high in this way, management sees that production climbing year-over-year, averaging 145,000 boe per day by 2027. Although the company will certainly have to spend more to increase production, they still forecast aggregate net-tax excess cash flow of between $5 billion and $6 billion. billion during this time window. And with net debt right now of just $1.20 billion, the company will likely find creative ways to return excess capital to its shareholders.

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Guide

Rising point energy

In fact, management has already been working on it. In the third quarter alone, the company repurchased 8.2 million shares for a combined value of $75 million. And through October of this year, which ends on October 25, the company bought another 3 million shares for $29 million. As long as energy prices remain elevated and company shares remain cheap, we should anticipate more share buybacks. But the management has also become creative in other ways. For example, they just announced a special dividend totaling $0.035 per share, payable at the time the company pays its regular dividend of $0.08 per share. This special dividend alone will cost the company $19.86 million, while the regular dividend will cost $45.39 million. Personally, I would prefer the company to focus its excess cash flows on additional share buybacks, especially given how cheap shares are. But any way to reward shareholders at a time when leverage is definitely under control isn’t necessarily a bad thing.

Put off

Based on the data provided, it seems to me that Crescent Point Energy is doing quite well for itself and its shareholders. The company looks incredibly attractive from a valuation perspective right now. I love the pure buybacks that the company is doing, although I see the special dividend as nothing. In general, I don’t like the dividend at all. But considering how affordable CPG stock is and considering management’s reasonable growth expectations, I think it could be a strong “buy” outlook at this point.

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