TSX Commentary » Suncor Energy Inc.

Suncor Energy SU Fire Repairs Unfold at U1

admin — Wed, 24 Feb 2010 17:44:38 +0000

Suncor Energy (SU) – $31.55 – Fire Repairs Unfold at U1
Sector Perform, Average Risk, Price Target; $46.00
On the heels of its assessment of an oil sands fire earlier this month, Suncor Energy anticipates that its 125,000 bbl/d Upgrader 1 should return to production by early April. Suncor does not expect to collect insurance proceeds in connection with the fire at Upgrader 1. RBC CM states that it is not “all that fussed” with Suncor’s remediation plan in its base oil sands operations, but notes that there is not much to cheer about in the near term. RBC CM maintains a Sector Perform rating on Suncor and a one-year target price of $46 per share. Investors seeking to retain oil sands exposure should switch into Canadian Natural Resources (Outperform, $95 Target) – RBC CM’s favourite stock within its coverage group.

Suncor Energy Inc. SU Fire in the Sands – Part II

admin — Wed, 10 Feb 2010 17:03:27 +0000

Suncor Energy Inc. (SU) – $31.85 – Fire in the Sands – Part II
Sector Perform (prev. Outperform), Average Risk, Price Target: $46.00 (prev. $49.00)
Suncor Energy experienced another fire in its oil sands operations – this time at its 125,000 bbl/d Upgrader I. Details are limited at the moment, but Suncor estimates that it will take a couple of days to assess the fire damage along with remediation measures. Predicated upon four weeks of repairs, RBC CM has modestly trimmed its 2010 (base) synthetic oil production outlook by 3.4% to 284,000 bbl/d and increased its oil sands cash costs by 4% to $38/bbl. At current levels, Suncor is trading at a 2010E debt-adjusted cash flow multiple of 8.0x (roughly in line with RBC CM’s Canadian integrated peer group at 7.9x) and a P/NAV ratio of 0.72x (slightly below the average of its Canadian integrated peer group of 0.81x). In RBC CM’s opinion, Suncor’s longer-term outlook remains favourable, underpinned by its improved operating cost structure, enormous oil sands resource base and ability to generate mid-single-digit production growth. At the same time, RBC CM’s has become increasingly concerned about its execution performance, recognizing full well that two oil sands fires within such a compressed a timeframe could be purely coincidental. RBC CM has downgraded Suncor by one notch to Sector Perform, and has trimmed its one-year target price by 6% to $46 per share. It is never easy to downgrade a stock once most of the bad news appears to be reflected in its valuation, but Suncor may trade in a sideways range in coming months pending improved oil sands operating performance and execution in general. In RBC CM’s view, investors seeking to retain oil sands exposure should switch into Canadian Natural Resources (TSX: CNQ, $69.75; O-Avg) – RBC CM’s favourite stock within its coverage group.

Suncor Energy SU Weak Q4 2010 Overshadows Suncor’s Core Value

admin — Wed, 03 Feb 2010 17:16:15 +0000

Veritas Research: Suncor Energy (SU) – $32.85 – Weak Q4 … Overshadows Suncor’s Core Value
Buy, Intrinsic Value Estimate: $45.00 (Oil at $80/bbl)
The market expected CFPS of $1.04 in Q4 but Suncor reached only $0.72 ($0.94 after working capital), about $500 MM short of expectations. Elevated oil sands costs ($38.70/barrel ex- Syncrude in Q4 vs. $32.25/barrel in Q3) added $165 MM in Q4, safe mode costs $120 MM and realized hedging losses $185 MM. Oil Sands volumes fell to 318,200 barrels per day (bpd), including Syncrude, down 8.7% from a pro-forma 348,600 bpd in Q3. Blame falls on a December Upgrader fire which has also dragged down January volumes and 2010 oil sands guidance, the latter to 338,000 bpd (+/- 5%). Veritas is lowering its estimate for Suncor’s 2010 CFPS to $4.75 on US$80 oil and $4.00 per share on US$70 oil. Suncor is hanging on to assets the market would like it to sell (Libya, Syria, Fort Hills, etc.), while reworking Voyageur and Fort Hills plans. Veritas was skeptical of the $300 MM of synergies promised when the merger was originally announced, and remains skeptical, pointing out that shrinking a company’s asset base can generate layoffs and cost savings, but that these are hardly ’synergies’. At least some of the $400 million in annual savings to be achieved by the end of 2010 are divestiture-related. Veritas estimates Suncor’s oil sands growth options are worth $10-$11 per share, which at the current price of $33 per share leaves its existing assets trading at less than 5.0x next year’s cash flow, an exceedingly low price considering 52% of 2010 volumes come from long life oilsands assets (60% after dispositions).

Suncor Energy Inc. SU Execution Will Driver Multiple

admin — Wed, 03 Feb 2010 17:14:22 +0000

Suncor Energy Inc. (SU) – $32.85 – Execution Will Driver Multiple
Outperform, Average Risk, Price Target: $49.00
Although RBC CM has trimmed its 2010 production outlook (prior to dispositions) by 4.5% to 640,000 boe/d, RBC CM’s revised operating EPS/CFPS estimate of $1.77/$4.88 is largely intact, reflective of lower expected cash taxes of $800 – $900 million. RBC CM anticipates 9% (vs. 5%) upstream growth in 2011, supported by base oil sands production of 325,000 bbl/d. Suncor is proceeding with the sale of roughly 250 mmcfe/d of western Canadian natural gas production with targeted proceeds of $1.5 – $2.0 billion, as well as 25,000 boe/d of international production. At current levels, Suncor is trading at a 2010E debt-adjusted cash flow multiple of 7.9x – roughly in-line with the Canadian integrated peer group at 8.0x, and a P/NAV ratio of 0.74x – vs. 0.83x for the peer group. While it seems clear that 2010 constitutes a transition year for Suncor, the company remains uniquely positioned and powerful with an oil sand resource base in excess of 22 billion barrels and a mid-single digit production growth profile as far as the eye can see. While Suncor remains a multiple revaluation story as its non-core assets are rationalized and its oil sands production weighting moves through 50% toward targeted levels of 70% over time, the need for much improved execution is equally central to RBC CM’s thesis. RBC CM is maintaining an Outperform rating on Suncor, but has trimmed its one-year target price by 2% to $49 per share, reflective of additional leverage on the balance sheet and a modestly lower multiple. RBC CM’s target price reflects a 60% weighting toward a multiple of 1.1x the Base NAV of $44.50 (down from $44.59) per share and a 40% weighting towards a 2011 implied mid-cycle debt-adjusted cash flow multiple of 8.6x (vs. 8.9x previously).

CIBC top picks for 2010

admin — Wed, 13 Jan 2010 16:24:36 +0000

Top Picks Of 2010
Ticker Company Rating Price Target
VNP 5N Plus, Incorporated Sector Outperformer $7.50
BPP BPO Properties Ltd. Sector Outperformer $21.00
CNR Canadian National Railway Company Sector Outperformer $65.00
EGO Eldorado Gold Corporation Sector Outperformer US$20.00
EMP.A Empire Company Limited Sector Outperformer $59.00
FM First Quantum Minerals Ltd. Sector Outperformer $115.00
FNV Franco-Nevada Corporation Sector Outperformer $46.00
MIC Genworth MI Canada Inc. Sector Outperformer $30.00
HR.UN H&R REIT Sector Outperformer $19.00
MN March Networks Corp. Sector Outperformer $7.00
PAAS Pan American Silver Corp. Sector Outperformer US$41.00
SJR.B Shaw Communications Sector Outperformer $24.00
SU Suncor Energy Inc. Sector Outperformer $44.00
TKO Taseko Mines Limited Sector Outperformer–Speculative $5.90
TOT Total Energy Services Sector Outperformer $8.00
TRP TransCanada Corp. Sector Outperformer $42.00

Source: CIBC World Markets Inc.

Suncor Energy Inc. (SU) – $38.73 – Getting Down to Business

admin — Thu, 07 Jan 2010 18:23:38 +0000

Outperform, Average Risk, Price Target: $50.00
Suncor Energy is wasting little time in refocusing its upstream portfolio on the heels of its merger with Petro-Canada, with Noble Energy acquiring its U.S. Rockies natural gas segment for US$494 million. Although modest in scale, the transaction may prove to be a harbinger of things to come as Suncor moves ahead with non-core dispositions in western Canada, Trinidad & Tobago, and the North Sea. Removing the U.S. Rockies transaction from the mix would point toward further proceeds that Suncor pegs at $1.5 – $2.0 billion. In our view, Suncor is a multiple revaluation story, as its non-core assets are rationalized and its oil sands production weighting moves into sharper focus toward targeted levels of 70% over time. We reiterate our Outperform rating and one-year target price of $50 per share on Suncor.

SU positive outlook despite belief Q309 results will be messy

admin — Wed, 21 Oct 2009 16:00:37 +0000

Our outlook is much more positive despite our belief that Q3/09 results will
be messy. We continue to believe Suncor, on a go forward basis, will be oil
sands focused, which generates attractive returns at current oil prices and
should perform well in a US$60-US$80/Bbl environment.
While leverage to oil has been reduced with its merger to PCA, SU was one
of the few companies with the ability to complete a major transaction at
arguably the low point in the commodity cycle thereby strengthening its
balance sheet and further solidifying its ample oil sands projects.
We believe synergies that
are inherent in the merger could provide further upside to valuations.

Suncor Energy Inc. oil sands elephant in the room

admin — Wed, 05 Aug 2009 01:00:19 +0000

SU becomes Canada’s largest energy company ($54B mkt cap) with
enormous oil sands resources of 22B barrels, which we believe will drive
growth and value creation going forward. Pro forma production (Q2/09) is
~695 MBbl/d with ~50% from oil sands (total oil/liquids weighting of 80%).

High debt levels, year low commodity prices in Q1 and high operating costs
are all in the rearview mirror as SU emerges stronger. With PCA’s free cash
flow generating assets, clean balance sheet and SU’s improving operations,
we project SU will exit ‘09 with available capital of $7.8B (incl. w.c. adj.).

Looking into 2010, we expect SU to resume Firebag 3 and potentially begin
rationalizing its non-core assets (in our opinion, U.S. gas, Libya, Syria and
Trinidad & Tobago). We forecast production of 706 MBbl/d and CFPS of
$4.81.