Antero Resources (AR) UPGRADE - Jan 12
Posted: Tue Jan 12, 2021 10:06 am
Tudor Pickering Holt Upgrading AR to Buy From Hold
Conviction in gas / liquids macro moving us off sidelines despite equity outperformance
Sector: NAm E&P | Ticker: AR | Recommendation: BUY | Target: $7 | Close: $6.67 < Compares to my updated valuation of $9.50/share (see my forecast model on EPG website).
Even with massive outperformance over the past 4-6 weeks, we think there’s still more to go if our constructive outlook on commodities plays out. The balance sheet at strip remains a sticking point with investors as the hedge roll-off into 2022 bounces ND/EBITDA from 2.2x YE’21 (TPHe $657MM maintenance capex for ~$400MM FCF at strip; management focused on another $1B in debt reduction) to 3.3x YE’22. However, we think that management’s A&D and capital markets activity dating back to late 2019 have significantly improved the story from a liquidity standpoint, with yesterday’s 2029 Notes offering finishing off the runway-clearing through the 2022s. Additionally, with increasing conviction in $3.25/mcf HH and sensitizing to $55/bbl WTI FY’22-FY’23, ND/EBITDA has room to improve further to 1.8x YE’22 and 0.9x YE’23, with FCF/EV increasing to average 14% (vs. 6% at strip). On valuation, marking-to-market FY’22 (after hedges roll off) to 10% FCF/EV could improve valuation to north of $15/shr.
Conviction in gas / liquids macro moving us off sidelines despite equity outperformance
Sector: NAm E&P | Ticker: AR | Recommendation: BUY | Target: $7 | Close: $6.67 < Compares to my updated valuation of $9.50/share (see my forecast model on EPG website).
Even with massive outperformance over the past 4-6 weeks, we think there’s still more to go if our constructive outlook on commodities plays out. The balance sheet at strip remains a sticking point with investors as the hedge roll-off into 2022 bounces ND/EBITDA from 2.2x YE’21 (TPHe $657MM maintenance capex for ~$400MM FCF at strip; management focused on another $1B in debt reduction) to 3.3x YE’22. However, we think that management’s A&D and capital markets activity dating back to late 2019 have significantly improved the story from a liquidity standpoint, with yesterday’s 2029 Notes offering finishing off the runway-clearing through the 2022s. Additionally, with increasing conviction in $3.25/mcf HH and sensitizing to $55/bbl WTI FY’22-FY’23, ND/EBITDA has room to improve further to 1.8x YE’22 and 0.9x YE’23, with FCF/EV increasing to average 14% (vs. 6% at strip). On valuation, marking-to-market FY’22 (after hedges roll off) to 10% FCF/EV could improve valuation to north of $15/shr.