Maple Leaf Foods Inc.

Maple Leaf Foods Logo
Maple Leaf Foods Logo (Photo credit: Wikipedia)


 TSX : C$14.44 HOLD 
Target: C$15.00

Maple Leaf Foods is a leading Canadian food processing company. The company operates in Canada, the US, and the UK manufacturing both protein and bakery products which it sells to a variety of end users including retail, foodservice, and grocery store chains.
All amounts in C$ unless otherwise noted.

Investment recommendation

Maple Leaf announced an agreement to sell its Rothsay rendering and biodiesel division to Texas-based Darling International, for $645 million.
We believe this represents a fair purchase price and note that the transaction is: (1) accretive at the EBITDA level; and (2) will allow for a meaningful reduction in net debt from currently elevated levels. Incorporating the transaction and rolling forward the estimates used to generate our target price from 2013 to 2014, our target price moves to C$15.00 (from C$13.50). However, we maintain our HOLD rating.
Investment highlights
 The transaction is accretive at the EBITDA level. Given that Rothsay generated $85 million of EBITDA in 2012, Darling is paying 7.6x 2012A EBITDA for the division. This is above Maple Leaf’s current multiples of 7.2x 2012A EBITDA and 7.0x 2014E EBITDA.
 Management stated that it will use the proceeds to pay down debt. Post closing of the transaction expected at year-end, we forecast net debt/EBITDA of 2.2x. This represents a meaningful improvement from our prior 4.0x estimate. We note that it also gives management considerably more latitude in capitalizing on core business related opportunities, while also potentially expediting the return of capital
to shareholders.
Our 12-month target represents 7.2x 2014E EBITDA. While we view Maple Leaf’s divestiture as positive, and remain constructive on the name longer term, the next few quarters are expected to remain pressured by volatile commodity costs and increased transactional costs as the company implements its Value Creation Plan. As a result, we believe investors should wait for a more attractive entry point

TriOil Resources Ltd.

Montney, British Columbia Location
Montney, British Columbia Location (Photo credit: Wikipedia)

TOL : TSX-V : C$2.68
Target: C$3.50

TriOil Resources is a junior oil & gas explorer/acquirer positioned in the Cardium at Lochend and an emerging Dunvegan oil play in Kaybob. TriOil is listed on the TSX-V under the symbol “TOL”.
All amounts in C$ unless otherwise noted.

Investment recommendation
TOL’s Q2 production came in slightly ahead of expectations, as the company continues to show strong growth through the drill bit. Despite limited capital investment during the quarter, 6 Dunvegan wells came on production and contributed to an impressive production increase of 19% over Q1. In the release the company reiterated that the exclusive negotiations with another party continue, and that it expects to provide an update on the negotiations at the end of the month.
Q2 Highlights
 TOL’s production came in at 4,147 boe/d, which was slightly ahead of our estimate of 3,971 boe/d (Exhibit 1). CFPS of $0.21 was in line with our estimate and 2 cents better than consensus.
 During the quarter the company spent just $9 million in capex, drilling one Dunvegan well at Kaybob (Exhibit 2),  completing 3 wells and bringing a total of 6 (4.1 net) on production. In the back half of the year the company plans to drill an additional 9 (6.1) horizontal
 Field activity has resumed following spring break-up. In addition to continued activity at Lochend and Kaybob, the company is drilling a horizontal Montney well at Pouce Coupe.
In our view, it was another strong quarter from TOL that should see a positive reaction from the market. Investors will likely continue to focus on the ongoing strategic review, however, with all eyes on the company’s upcoming announcement expected at the end of the month. TOL is rated HOLD, with a C$3.50 target price (our valuation is NAV based and implies a 2013E EV/DACF of 5.0x)

Raging River Exploration Inc. Remains Top Pick Junior Oil and Exploration

RRX : TSX : C$4.98
Target: C$5.50

Raging River Exploration Inc. is a junior E&P company focused on the development of the Viking light oil resource play in Saskatchewan, and trades on the TSX under the symbol RRX. The company was created from the spin-out of assets following Crescent Point’s acquisition of Wild Stream Exploration in 2012.
All amounts in C$ unless otherwise noted

Investment recommendation

Q2 results presented no surprises given the company pre-released its estimated production for the quarter in its operational update on July 16. The principal takeaways were the third consecutive increase to its 2013 guidance and the company’s continuous step-out drilling successes to date. Raging River remains one of our top Junior stock recommendations as it provides investors with a solid strategy of strategic resource capture acutely focused in the Viking resource play in
southwest Saskatchewan, and a best in class management team with a history of value creation and development execution.

We have  maintained our BUY rating and C$5.50 target price based on an unchanged 1.1x multiple to NAV and a 7.4x 2014 EV/DACF multiple.
Investment highlights
Q2 in line. Second quarter production averaged 4,620 boe/d, in line with our estimate of 4,594 boe/d and consensus of 4,425 boe/d. Operating CFPS came in at $0.15, in line with CG/consensus of $0.15.
Third guidance increase. The company upwardly revised its guidance for a third time this year; although capital spending and production both rose, the company continues to deliver above type curve results.
Management does an enviable job consistently beating expectations. Inventory expansion a key theme. The company recently drilled and tested nine wells at Beadle, seven of which were drilled in previously untested sections. Management estimates the NPV value uplift from this type of inventory expansion to be in the range of $50 to $100 million.
Raging River currently trades at a 1.0x multiple to CNAV estimate, 7.6x EV/DACF, and $163,200/BOEPD based on our 2013 estimates vs. its peer group averages of 0.7x CNAV, 6.1x EV/DACF, and $77,700/BOEPD.

Painted Pony Petroleum Ltd.

Montney, British Columbia Location
Montney, British Columbia Location (Photo credit: Wikipedia)

PPY : TSX-V : C$8.21
Target: C$16.00

Painted Pony Petroleum is a junior oil & gas explorer focused primarily on the Montney in northeast British Columbia. Painted Pony is listed on the TSXV under the symbol “PPY”.
All amounts in C$ unless otherwise noted.

Investment recommendation
Painted Pony released Q2/13 results that were largely as expected given that the company had provided a full operational update on July 25.
While there was not a lot of new information in the release, current production levels of 9,200 boe/d (vs. Q2 average of 7,928) are are promisingng, and have the company poised to exit 2012 close to the 10,000 boe/d mark. Painted Pony remains one of our favourite names in the Junior E&P space, as we believe it offers enormous resource potential with a path to value realization.
Q2/13 highlights
 Production: PPY announced Q2 production of 7,928 boe/d, which was slightly above the pre-announced figure of 7,800 boe/d from two weeks ago. Production during the quarter was hampered by wet weather conditions and facility constraints. In July, production averaged 8,700 boe/d and has increased again to a robust 9,200 boe/d in the first week of August. In our view, strong production
figures through the back half of the year have the potential to be a
material catalyst for the stock.
Cash flow: PPY’s CFPS for the quarter came in at $0.14, which was one penny shy of our estimate and consensus. The slight miss to our estimate was largely the result of marginally higher cash costs.
 Montney drilling: Year-to-date, PPY has drilled (or is now drilling) eight (5.6 net) Montney horizontals in NE BC, with another five (4.0 net), planned for the remainder of the year. The latest set of well results, released in the company’s July 25 operational update, included positive well rates from Townsend and Blair


Paramount Resources Ltd.

Target (1985 film)
Target (1985 film) (Photo credit: Wikipedia)

POU : TSX : C$34.35
Target: C$43.00

Paramount has a 35-year history of successful operations in Western Canada. It takes a long-term approach to exploration and development activity of both oil and natural gas, and boasts over 50% insider ownership.Near-term growth is focused in the Deep Basin of Alberta

Investment recommendation
Paramount’s second quarter results fell short of expectations, reflecting
a higher than anticipated impact from curtailments at Valhalla and shut
in volumes at Karr. It bumped its capital program by $100 million
primarily given middle Montney success at Karr, and now maintains
~200 MMcf/d of net raw gas behind pipe available for its Musreau deep
cut facility. The principal near term operational catalyst in our view
remains the more than doubling of production volumes expected in early
2014, which should include validation of its material Montney gas and
NGL test rates via long term sustained production performance. POU is
forecast to grow into its valuation over time given its production growth,
and trades at a more reasonable 9.7x EV/DACF on annualized Q4/14
estimates. We have maintained our BUY rating and C$43.00 target
based on an unchanged 1.1x multiple to NAV.
Investment highlights
Q2 falls short, but only a bump in the road. Production averaged 20,790 boe/d versus CG/consensus of 22,860/22,922 boe/d. Operating CFPS was $0.21, in line with CG/consensus of $0.22/$0.24.
Advancing commerciality and returns from the Montney. POU continues to test a number of concepts and focuses on cost reductions in its Montney program at Musreau/Resthaven. It recently approved two, ten well pads to be drilled this year and into 2014, which will test multiple concepts, including: 1) orientation differences, 2) interwell spacing, and 3) testing offset wells in the D1 and D2 lobes of the Upper Montney.
Paramount currently trades at a 0.9x multiple to CNAV, 11.2x EV/DACF,and $82,700/BOEPD based on our 2014 estimates, versus peer group averages of 0.8x CNAV, 7.1x EV/DACF, and $68,600/BOEPD.

Bellatrix Exploration Ltd.

Manly ferry SS BARAGOOLA and French warship BE...
Manly ferry SS BARAGOOLA and French warship BELLATRIX behind at Morts Dock (Photo credit: Australian National Maritime Museum on The Commons)

BXE : TSX : C$7.12
Target: C$10.00

Bellatrix Exploration is an intermediate sized exploration and production company with operations in Western Canada primarily focused on multi-zone opportunities in west central Alberta.
All amounts in C$ unless otherwise noted.

Investment recommendation

Bellatrix announced an asset sale and associated $200 million JV with Daewoo and Devonian Natural Resources Private Equity Fund. The deal  was $0.50/share accretive to our NAVPS estimate. Capital acceleration continues to be key to re-rating the shares and we see potential for multiple expansion on the stock given its industry-leading growth profile; we forecast 50% YoY production per share growth in 2014.
Fundamentally, Bellatrix remains one of our top stock recommendations

We have maintained our BUY rating but have increased our target to C$10.00 (from C$9.50 target) given the $0.50/share NAVPS uplift associated with the JV transaction. Our target is based on a 1.0x multiple to NAV and reflects a 2014E EV/DACF multiple of 4.8 times.
Investment highlights
Attractive “promote” brings in a deep pocketed strategic partner. The $52.5 million asset sale was central to the transaction, providing for capital acceleration potential. This provides a clear benefit to BXE in light of the 50/50 JV structure and brings in a deep pocketed strategic partner. We believe the market may draw comparisons to Daewoo’s entry into West Central Alberta with PETRONAS’ early entry into the Basin whereby it took a modest initial investment and subsequently
followed up with a larger corporate acquisition.
Bellatrix trades at a 0.7x multiple to CNAV, a 5.5x EV/DACF multiple and $41,500 per BOEPD based on our 2013 estimates, compared to peer group averages of 0.8x NAV, 7.3x EV/DACF and $72,500/BOEPD.

Peyto Exploration & Development Corp.

English: 4-31-5-5 A Pumpjack in southern Alber...
English: 4-31-5-5 A Pumpjack in southern Alberta fueled by natural gas. (Photo credit: Wikipedia)

Readers of this blog and my book The Apprentice Millionaire Portfolio ( available from will know that my daughters went to university based on my position in Peyto – chasing it up from $ 8 to $ 40

PEY : TSX : C$30.33
Target: C$32.00

Peyto Exploration is a low-cost gas-weighted dividend paying intermediate E&P focused on horizontal drilling in the Deep Basin of Alberta, Canada with highly contiguous land and multi-zone gas potential.
All amounts in C$ unless otherwise noted.


Investment recommendation
Valuations across our natural gas weighted universe are down following our updated commodity price forecasts, which include a reduced near and long term natural gas price outlook. Peyto’s 2014E cash flow and NAV are down 13% and 12%, respectively, following our revised price deck, resulting in a target price reduction to C$32.00 (from C$33.00). Given the strong share price appreciation year-to-date, and modest 9% potential total return to target, we are lowering our recommendation on Peyto Exploration to HOLD (from Buy). Peyto maintains an industry leading cost structure and a clear roadmap to double-digit growth; however, we feel the shares, which trade at a 10.5x EV/DACF multiple on our 2014 estimates, reflect fair value at current levels. Our target is based on a 1.3x multiple to NAV and reflects a 2014E EV/DACF multiple of 11.0x.
Investment highlights
Natural gas price forecasts revised downward. We are lowering 2014E to US$4.25 (from US$5.25), and 2015/2016E+ at US$4.50/US$4.75. Our near term outlook is down primarily related to higher U.S. natural gas production. Our associated report includes additional details: “Intermediate and Junior E&P: Q2/13 preview and revised commodity price forecasts”.
Correlation between PEY’s stock price and commodity has broken down. On page 2 of our note, we highlight the divergent performance of PEY shares versus AECO, which has historically maintained a 0.9x correlation.
Peyto currently trades at a 1.2x multiple to CNAV, a12.6x EV/DACF multiple, and $90,100/BOEPD based on our 2013 estimates, versus peer group averages of 0.8x CNAV, 7.6x EV/DACF, and $74,100/BOEPD.