Friday, September 7, 2007

Canaccord on Crescent Point

Crescent Point Energy Trust (CPG.UN : TSX : $19.26)
Buy - Target: $22.00
Bruce McDonald

Comment: More of a good thing; Crescent Point announces $400 million acquisition of Innova to consolidates Bakken play.

Crescent Point announced its agreement to acquire all the issued and outstanding shares of Innova Exploration Ltd. (IXL : TSX : C$6.19-HOLD) for $360.1 million. Including assumed net debt of $39.9 million, total consideration to be paid is approximately $400 million.

We estimate thetransaction to be 5% accretive to 2008 production per unit and 7%accretive to 2008 cash flow per unit. On a debt-adjusted basis, the transaction is
only 2% accretive to cash flow. However, we believe the acquired Bakken play asset is world class. While Crescent Point is using almost all of its 2007 "safe harbour" room, which limits its future growth, the Bakken asset presents above-average growth prospects from inventory prospects.

Under the forward strip, pro forma the Innova acquisition, Crescent Point shares are currently trading at 7.0 times 2008E EV/EBITDA, above the smaller cap trust average of 6.4 times, but warranted given Crescent Point's longer RLI.

We maintain our BUY recommendation and 12-month target price of C$22.00. Our target price is based on a 2008E EV/EBITDA target multiple of 7.8 under the forward strip, above our smaller cap trust average target multiple of 7.2 given Crescent Point's distribution stability and large prospect inventory.

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