Proactive Investors - Vermilion Energy Inc (TSX:TSX:VET) is ‘past the point of maximum pessimism’ with clarity on the impact of the European Union’s windfall tax and the closing of its acquisition of an increased stake in the Corrib natural gas project in Ireland, according to analysts at Stifel GMP.
As outlined in its 2023 budget and guidance, the Calgary-based oil and gas producer is targeting production growth of 3% year-over-year while it returns 25% of its project free cash flow to shareholders by increasing its base quarterly dividend by 25% and reinstating its buyback program.
As a result, the analysts reduced their price target from C$42 to C$37 but kept a 'Buy' rating on the stock. Vermilion’s Toronto-listed shares are currently trading at about C$19.70.
They also noted that Vermilion had obtained formal Irish government consent for the Corrib acquisition, which is expected to close by the end of 1Q 2023. The acquisition will bring the company’s interest in the project to 56.5%.
“We believe the battered share price in connection with uncertainty in the EU windfall tax coming into play, a slight delay in Corrib closing, and unclear dividend/buyback plans is a buying opportunity for a stock we believe offers a differentiated free cash flow premise and commitment to return this free cash flow to shareholders versus its peers,” they wrote.
The analysts wrote that the roll-out of the company’s 2023 guidance quells these shorter-term fears, harmonizes forecast expectations, clarifies return of capital plans, and regains confidence in the compelling economics in Vermilion's business.
“We believe this will be even more apparent when we roll out our 2024 estimates that will show the true potential of the company with the EU windfall tax expiring,” Stifel’s analysts concluded.