Vermilion has reported Q219 FFO (fund flows from operations) of C$222.7m, 4.8% below consensus of C$233.8m and 8.2% below our forecast of C$242.5m despite a 14% increase in FFO y-o-y. Key drivers of the miss versus our forecast include reduced production in France due to a refinery outage which had a post-tax FFO impact of C$11m and an inventory build in Australia which had an impact of C$8m. At 103.0kboed, production was 1.2% ahead of our forecast despite the outage in France, driven by new wells contributing in the US (production +21% q-o-q) and Australia (+14% q-o-q). Guidance for FY19 production remains 101–106kboed (with the mid-point implying 19% y-o-y growth) and Vermilion’s capex budget of C$530m remains unchanged. Our last published valuation was C$47.5/share, based on a blend of FY19 P/CF, EV/EBIDAX and multiple of FCF plus five-year NAV growth. We note that there has been a material de-rating in the Canadian large-cap E&P sector which currently trades at an average 2.7x FY19e P/CF versus 3.8x at the time of our last Vermilion publication.
Written by
Vermilion Energy |
Q219 FFO 4.8% below consensus |
Q219 results |
Oil & gas |
29 July 2019 |
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Vermilion Energy is a research client of Edison Investment Research Limited |
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Vermilion has reported Q219 FFO (fund flows from operations) of C$222.7m, 4.8% below consensus of C$233.8m and 8.2% below our forecast of C$242.5m despite a 14% increase in FFO y-o-y. Key drivers of the miss versus our forecast include reduced production in France due to a refinery outage which had a post-tax FFO impact of C$11m and an inventory build in Australia which had an impact of C$8m. At 103.0kboed, production was 1.2% ahead of our forecast despite the outage in France, driven by new wells contributing in the US (production +21% q-o-q) and Australia (+14% q-o-q). Guidance for FY19 production remains 101–106kboed (with the mid-point implying 19% y-o-y growth) and Vermilion’s capex budget of C$530m remains unchanged. Our last published valuation was C$47.5/share, based on a blend of FY19 P/CF, EV/EBIDAX and multiple of FCF plus five-year NAV growth. We note that there has been a material de-rating in the Canadian large-cap E&P sector which currently trades at an average 2.7x FY19e P/CF versus 3.8x at the time of our last Vermilion publication.
Year end |
Revenue (C$m) |
EBITDA* |
Operating cash flow (C$m) |
Net (debt)/ |
Capex ex |
Yield |
12/17 |
1,024.4 |
673.5 |
593.9 |
(1,223.8) |
320.4 |
10.6 |
12/18 |
1,526.0 |
1,036.5 |
816.0 |
(1,768.9) |
518.2 |
11.2 |
12/19e |
1,730.4 |
1,045.4 |
945.2 |
(1,801.6) |
533.4 |
11.4 |
12/20e |
1,803.5 |
1,114.3 |
1,007.6 |
(1,803.5) |
564.1 |
11.4 |
Note: *Reported EBITDA includes hedging and FX gains/losses. **Net debt = long-term debt, plus short-term debt minus cash and equivalents.
Dividend and buyback
Vermilion’s board has authorised an application to the TSX to implement a normal course issue bid (NCIB) for a maximum amount of 5% of the issued and outstanding shares of Vermilion. The NCIB is intended to augment the ongoing return of capital via dividends with the company’s shares currently yielding 11.4%. Net debt to quarterly annualised FFO remained similar to last year at 2.19x.
Operational performance and European gas hedges
Vermilion had an active quarter for exploration drilling in Europe, with five out of six successes and a new exploration licence award in Ukraine (292,500 net acres). Weak gas prices in Europe weighed on FFO, with NBP and TTF reaching multi-year lows. Hegde positions limited the loss with a C$14m pre-tax gain in the quarter and Vermilion has secured pricing for 70% of its FY19 summer volumes and 65% of its European gas volumes for FY20.
Valuation: Blended C$47.5/share, 11.4% yield
Our last published valuation of C$47.5/share includes sensitivities to key commodity prices. We estimate that maintenance capex, growth capex and dividend are covered at current commodity prices. Vermilion currently trades at 4.2x our forecast FY19 P/CF versus the Canadian large-cap sector on 2.7x reflecting its peer-leading yield and growth.
Results versus Edison and company consensus
Exhibit 1: Q219 reported versus our forecasts and consensus
Metric |
Unit |
Edison |
Consensus |
Reported |
vs Edison |
vs consensus |
Production |
kboed |
101.8 |
103.8 |
103.0 |
1.2% |
-0.7% |
FFO |
C$m |
242.5 |
233.8 |
222.7 |
(8.2)% |
(4.8)% |
FFO/share (diluted) |
C$/share |
1.57 |
1.52 |
1.42 |
(9.6)% |
(6.3)% |
Source: Edison Investment Research, Vermilion Energy
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