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Message: CANNACORD PICK .....
Manitok Energy Inc. Anthony Petrucci - Canaccord Genuity Corp. (Canada) apetrucci@canaccordgenuity.com 1.403.691.7807 Jeff Ebbern - Canaccord Genuity Corp. (Canada) jebbern@canaccordgenuity.com 1.403.691.7811 MEI : TSX-V : C$2.29
BUY
Target: C$4.00
COMPANY STATISTICS: Forecast Return %: 75% Shares Out (M): 76.0 Market Cap (M): C$174.1 52-week Range /shr: C$1.93 - 3.38 FYE: Dec EARNINGS SUMMARY: FYE Dec 2013E 2014E 2015E Production (b/d): 2,104 3,892 5,114 Production (mmcf/d): 11.70 12.92 15.09 Equivalent Production (boe/d): 4,053 6,044 7,628 CFPS /shr: C$0.54 C$0.94 C$1.32 EV/DACF: 5.3 2.8 2.0 EV/Production: 51,528 34,553 27,379 SHARE PRICE PERFORMANCE: Source: Interactive Data Corporation COMPANY DESCRIPTION: Manitok Energy Inc. is a junior oil and gas explorer focused in the Foothills, with assets throughout Alberta. Manitok trades on the TSX Venture under the symbol "MEI". All amounts in C$ unless otherwise noted. Energy -- Oil and Gas, Exploration and Production GOING AGAINST THE GRAIN; INITIATING COVERAGE WITH A BUY RATING AND C$4.00 TARGET PRICE Investment recommendation We are initiating coverage of Manitok Energy with a BUY rating and a C$4.00 target price. Our valuation is NAV based, and maps to a 2014E EV/DACF of 4.6x (versus the peer group at 6.3x). Why we believe this stock is set to outperform:
The investment case speaks for itself: Top-tier growth, both in
production per share (47% last year; 38% forecast for this year) and CFPS (82% last year; 72% forecast for this year), at an extremely discounted price (2014E EV/DACF of 2.8x vs. peers at 6.3x). Add to that a very strong balance sheet (D/CF of 0.7x), with the extra appeal of several potential catalysts on the horizon.
Why is it trading at such a discount? Given MEI’s considerable
operational success, the obvious question is ‘why such a discounted
valuation in the market’? We believe it is the result of: 1) repeatability
concerns at Stolberg (the company’s core producing property), 2) the recent loss of Tim De Freitas as COO and VP of exploration, and 3) uncertainty over the potential at Entice (the company’s recently announced farm-in asset).
So what’s our view? While we understand the market’s concerns, we
believe they are overblown and the result is a stock that is considerably undervalued. While Stolberg Cardium does not provide the running room visibility of its Pembina et al Cardium counterparts, MEI has continually expanded its inventory in the play, with visible inventory remaining at ~20 locations despite an active drilling program. Also, while we acknowledge that De Freitas was instrumental to the
company’s success in the Foothills, Manitok boasts considerable bench
strength with experience in the region. And finally, with regards to Entice, there is virtually nothing in the production and cash flow forecasts (let alone share price) for this opportunity, so in our view it provides great upside potential. In short, we believe Manitok is extremely undervalued and those early to return to the story will be handsomely rewarded with share price appreciation. While we recognize the market’s concerns, Manitok has delivered operationally over the last three years, and we believe 2014 is poised to be another year of strong growth. In addition, we believe the exploration efforts at Entice will serve as meaningful catalysts for the stock through this year. We are initiating coverage of Manitok Energy with a BUY rating and a C$4.00 target price
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