Surge Energy (SGY-TSX) Profile Update - Sept 4

[dan_s]

Today I updated the profile and forecast model for Surge Energy (SGY and ZPTAF). Surge was in our Small-Cap Growth Portfolio until recently when I decided to move it to our High Yield Income Portfolio.

After Surge's production grew by 20.5% in 2022 and another 14.9% in 2023, the Company decided to focus on shoring up their balance sheet in 2024 so they can increase their dividends and stock buybacks.
> In 1H 2024 they have used free cash flow from operations and proceeds from two non-core asset sales to pay down their debt.
> Upon meeting their Phase Two debt reduction goal, they raised their monthly dividend.
> Production will be down slightly (less than 2%) in 2024, but the production mix has improved to more oil, so revenues should be up a bit YOY.
> Surge should generate close to $100 million of free cash flow this year. The balance sheet is in good shape with NO DEBT ISSUES.
> It pays monthly dividends.
> The annualized dividend yield is ~8.4%.
> Twelve energy sector analysts based in Canada rate SGY a BUY with an average price target of $12.05Cdn.
> SGY.TO closed today at $6.08Cdn < Less than 2.2 X my 2024 Operating CFPS forecast of $2.85
> Surge recently announced a significant oil discovery they call Hope Valley.

You can view or download the updated profile and forecast model directly from the EPG website.

[Fraser921]

They built their budget on 75 Wti. Since the strip is now in the 60’s, the juicy dividend is at risk if it stays there.

People don’t like dividend cuts.