Baytex Energy Trust (BTE.UN : TSX : $21.35) - Buy - Target: $25.00
Bruce McDonald
Comment: Raising Baytex Energy Trust target price due to accretive acquisition
On May 29, 2007, Baytex announced its agreement to acquire Dominion's assets focused in the Pembina and Lindbergh areas of Alberta for a total consideration of $238 million.
We are now off restriction following the trust's recently closed $149.5 million financing. Baytex is acquiring the assets for an attractive $52,889 per boepd,or $12.14 per proved plus probable reserves. We estimate that the transaction is 6% accretive to 2008 cash flow per unit. This acquisition establishes a new core area for Baytex at Pembina in the prolific Nisku trend. Baytex's netback is also improved with the increase of light oil in its production mix.
Baytex's COO was previously President and CEO of Dominion Canada, and as a result, we believe the company has very good property knowledge. Under NYMEX forward
strip pricing, Baytex is currently trading at a 6.5 times 2008E EV/EBITDA,
below the interlisted average of 7.4 times, despite a lower-than-average payout ratio and D/CF.
We maintain our BUY recommendation and are raising our 12-month target from C$24.00 to C$25.00 due to the accretion of the transaction. Our target price is based on a 2007E EV/EBITDA target multiple of 7.4 under the NYMEX forward strip, in line with the average interlisted trust target multiple.
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