MEGEF - MEG Energy: Impacts Of The New Royalty Regime - Trans Mountain Expansion Increased Payouts
2024-04-19 10:19:37 ET
Summary
- MEG Energy is expected to benefit from narrowing heavy oil differential caused by the coming TMX pipeline.
- By the end of the third quarter, the company should switch to a 100% payout via buybacks and potentially initiate a small dividend.
- The stock valuation is dragged down by higher royalty payments going forward.
- Most of the catalysts seem to be priced in, but I believe that there is a further ~20% upside in the share price to reach a fair value.
- Recently, we saw insiders selling the stock, which made me rate the stock as a HOLD with a price target of C$39 per share.
Investment Thesis
With a narrow focus on heavy oil from oil sands, MEG Energy Corp. ( MEG:CA )( MEGEF ) presents the purest play on the expected lower WTI/WCS differential caused by the Trans Mountain expansion (TMX). The company is about to start paying all FCF into shareholders' pockets.
The only question: How much is already priced in the share price?
Despite the stock being over 20-bagger from 2020 lows and beating almost all its peers, I suggest investors to avoid anchoring and focus on the value....
MEG Energy: Impacts Of The New Royalty Regime - Trans Mountain Expansion, Increased Payouts