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Look for buying opportunity in Suncor and Canadian Natural, Citigroup says : }4 _) O- ? _
The negative after-market reaction to Alberta’s proposed royalty changes for the energy sector appears overdone and may present an opportunity to buy some names in the sector, says Citigroup analyst Doug Leggate. 7 m+ Y& v Z/ B3 S
/ p$ f1 o4 d# g8 c+ q- ]" YHe recommends keeping an eye on preferred names in the sector like Suncor Energy Inc. (SU/TSX) and Canadian Natural Resources Ltd. (CNQ/TSX), but admits there will likely be a strong response to any change from the industry.
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& v! [. b- B- ^: ~This view is partly a result of oil prices. Citigroup has a long-term oil price assumption of US$60 per barrel, which means the changes are not considered material enough to warrant any alterations to its earnings or target prices.
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! x! S8 }' Z* O3 g) h8 GAt first glance, the proposed regime looks significantly less onerous than feared, Mr. Leggate said in a research note, adding that with US$55 oil, there would be no changes to his assumptions.
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9 g9 y, D* T( e- @9 iThere would be an impact with prices at US$100 and the royalty rate increases on a sliding scale with a cap at US$120 for WTI crude, he said, adding that the sector is discounting prices below US$60. ' o! [* i1 }% \$ q# i
" T6 Q" B6 P0 H+ K+ q2 h& l“...Versus the level of oil prices we estimate are currently being discounted in the major Canadian oil sands players, the impact on valuations looks benign,” Mr. Leggate wrote., Q+ d$ C6 V+ F7 k3 `9 |
+ d l) G/ \2 r& F+ J" v: H& _So while he acknowledged that the new regime gives away some upside, the analyst thinks plenty of core value remains with investors. |
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