**March 28th Issue of The JMRD Market Observer**March 28, 2014
In This Week’s Market Observer…
- Bellatrix Exploration added to NBF’s Action List!
- NBF Monthly Economic Monitor
- Retirement Corner
- Week at a Glance
- Reads of the week
- Economic Calendar
- Earnings Reports
Bellatrix Exploration Ltd.: Growth Will Continue to Add Value
Bellatrix Exploration (BXE) was added to NBF’s Action List this week. Bellatrix is a familiar name as Team members have met with management a couple of times on our Fall Calgary trips. BXE has grown to an enterprise value of $2B and is now listed on the NYSE in addition to the TSX Exchange. The company remains a compelling growth story that has been fuelled by 3 Joint Ventures the company signed in 2013. Two JV’s were with Korean partners while the 3rd JV was with a Canadian Private Equity investor. The capital has resulted in Bellatrix being able to spend more to see production levels double this year from 2013 levels. The company is adding infrastructure that will further add to it’s growth. Bellatrix trades at a discounted valuation relative to its peers despite superior per share growth with a strong balance sheet. We remain buyers at current levels.
As a reminder, NBF’s Action List is not a diversified portfolio of stocks but rather National Bank Financial analyst’s best ideas, bullish or bearish. Analysts are not required to have stocks included on the list, only when they see compelling ideas. There are no market cap or liquidity requirements and the list of names is kept small, allowing only 10% of an Analyst’s coverage to be included on the list at any time
Adding to the Action List
Imminent facility expansions to accommodate growth
Multiple facility initiatives, including: 1) Q1 Blaze pipeline (120 mmcf/d capacity), 2) Q3 Keyera connection (50 mmcf/d capacity) and 3) mid-2015 BXE Deep Cut plant (110 mmcf/d capacity) – will allow for 6,000 boe/d of constrained production to be de-bottlenecked near term (vs. current 36,000 boe/d) and will facilitate future growth (incremental 45,000 boe/d of processing capacity detailed above).
Drilling results trending 50% better than industry peers
As a result of a differentiated view on drilling/completion within the Cardium (oil) and Notikewin (gas) reservoirs, in addition to its position as an early adopter of technological advancements (zipper fracs, 2-mile horizontals), the company continues to deliver well results +50% better than industry peers – projecting these rates through to its 2014 budget (76 net wells), we could envision an exit rate of +/-55,000 boe/d (vs. guided 47,000 boe/d).
Funded-growth strategy stands out versus the peers
With ~$700 mln in promoted joint venture capital committed through 2016 (which likely grows), in addition to top-tier results noted above, we see best in class capital efficiencies generated (<$16,000/boed), resulting in a high funded growth rate (+25% Y/Y growth while maintaining leverage <1.0x).
We are adding BXE to the Action List; Maintain Outperform and $12.00 Target Price
In sum, we see considerable value expansion potential in BXE, with a potential year-end share price of +$13 (+45% upside). Moreover, the stock has lagged and currently trades at a 25% discount to the intermediate peers; we believe that as it is one of the greatest beneficiaries of an improved gas price environment, we could see incremental tailwinds to value from multiple expansion.
NBFM Monthly Economic Monitor – April 2014
- Buoyed by the manufacturing sector, the global economy expanded further in the first quarter despite activity being hampered somewhat by bad weather in North America and Europe. China, however, seems to be sputtering as Beijing cracks down on credit and polluting industries, although 2014 growth may still end up close to the central government’s target thanks to the higher projected infrastructure spending. Overall, we remain comfortable with our call for the global economy to expand 3.7% this year.
- After a weather-battered Q1, the U.S. economy looks poised to bounce back. Consumption can strengthen further on the back of an improving labour market and the end to household deleveraging, while prospects for investment spending are also good thanks to healthy corporate profits and a better economic outlook. We have raised our inflation forecasts to account for higher-than-expected food prices. Upward price pressures coupled with above potential GDP growth in 2014, should set the stage for Fed rate hikes next year.
- Like its southern neighbor, Canada is set to see a moderation in growth in the first quarter of 2014 after a strong second half last year. Subsequent quarters, however, should be better as improving U.S. demand eventually translates into higher export growth for Canada, with the additional help of a more competitive Canadian dollar. The weaker loonie together with the narrowing output gap should keep upward pressure on inflation whose forecasts we’ve now upgraded a bit.
Week at a Glance
Reads of the Week
“Forget Keystone XL, one of Canada’s wealthiest business dynasties has a ‘Plan B’ for the oil sands.” (Financial Post) Keystone XL, a pipeline proposal to pump Canadian oil sands through the heart of America, has alarmed environmentalists and become one of the most contentious issues of the Obama presidency. But there is a “Plan B” to cut the United States out of the picture, and it is championed by one of Canada’s wealthiest business dynasties. Since 2012, the billionaire Irving family has been advocating a proposal called Energy East. The 2,858-mile (4,600-km) pipeline would link trillions of dollars worth of oil in land-locked fields in the western province of Alberta to an Atlantic port in the Irvings’ eastern home province of New Brunswick, north of Maine, creating a gateway to new foreign markets for Canadian oil.
Monday March 31st – Canadian GDP, Chicago Purchasing Manager
Tuesday April 1st – Canadian Industrial Product, Canadian Raw Materials Price Index
Wednesday April 2nd – U.S. ADP Employment Change, ISM New York, U.S. Factory Orders
Thursday April 3rd – U.S. Initial Jobless Claims, U.S. ISM Non-manufacturing Composite
Friday April 4th – Canadian Unemployment Rate, Canadian Net Change in Employment, Canadian Ivey Purchasing Managers Index, U.S. Unemployment Rate, U.S. Change in Nonfarm Payrolls
Monday March 31st – None
Tuesday April 1st – None
Wednesday April 2nd – Monsanto
Thursday April 3rd – Micron Technology
Friday April 4th – None
Categorised in: JMRD Updates