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Look for buying opportunity in Suncor and Canadian Natural, Citigroup says `0 i7 ~- l" X* J& y3 {
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. 8 |2 O @5 v- a. y2 w
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He 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.& M! j- b& L3 D
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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.( y! M- W# x& Z# ~1 R( M
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At 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.% a g M2 b* H* _5 ^
# x, t2 C4 e7 T% E2 V6 E& pThere 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$60.
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9 _4 Y9 ~# z& Y; A- \" X“...Versus the level of oil prices we estimate are currently being discounted in the major Canadian oil sands players, the impact on valuations looks benign,” Mr. Leggate wrote., B6 N$ _# C( X+ `( b- I+ h2 O9 [
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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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