CA - Peyto: Secured 9% Dividend Yield With Several Tailwinds

2024-06-18 09:12:51 ET

Summary

• Peyto is well-positioned in the gas market with a strong hedging strategy securing a high dividend yield of 9%.
• Production growth is on track with a target of ~160k BOE/D in 2028, supported by the acquisition of Repsol assets and smart drilling.
• PV15 valuation suggests a potential 35% upside in share price, with risks including volatility in gas prices and operational challenges.

Earlier this year, I wrote analyses about Peyto being well-positioned in the gas market as the lowest-cost Canadian producer. While the gas prices in the US picked up and are currently trading close to US$3/MMBtu, the Canadian AECO prices created a large differential, trading close to US$0.5/MMBtu. If selling for AECO prices, even Peyto wouldn't be profitable at these levels. Fortunately for us, Peyto has a strong hedging and diversification strategy and has hedged its gas prices till 2026. This makes its high dividend yield of 9% well-secured while waiting for gas price recovery....

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