Talos Energy (TALO) Updated Valuation - Sept 24

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Talos Energy (TALO) Updated Valuation - Sept 24

Post by dan_s »

TALO closed on Sept 23 at $15.69, which compares to First Call's price target of $27.40 and TipRanks' consensus valuation of $28.00.

I have updated my forecast/valuation for TALO based on the assumption that the acquisition of EnVen Energy will close in December, 2022.

My valuation adjusts to $38.00/share, up $3 from the valuation shown in my 9/20/2022 newsletter.
The primary reasons for the increase are:
> The EnVen acquisition is immediately accretive to free cash flow generation.
> It diversifies their asset base and gives them a lot more "running room", which is key to my valuation of any company.
> The EnVen acquisition (actually a merger) moves Talo to their debt reduction goal of less than 1.0 X EBITDA
> 2023 production should be ~94,000 Boepd (70% oil, 22% natural gas and 8% NGLs) + significant exploration upside.

It will take awhile, probably after Talos announces Q3 results and we get past hurricane season, before the Wall Street Gang updates their valuation models.

If WTI averages $100/bbl in 2023 the company should generate over $1.4 billion of operating cash flow (over $11/share)
If WTI averages $80/bbl in 2023 the company should generate over $1.1 billion of operating cash flow (over $8.50/share)
IMO a reasonable 12-month price target should be 4X operating cash flow per share.

My updated forecast/valuation model has been posted to the EPG website.
Dan Steffens
Energy Prospectus Group
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