Raymond James' take on Antero Resources - April 23
Posted: Fri Apr 23, 2021 10:12 am
Antero Resources (AR): Thoughts on the Quarter
Expecting over $300M of FCF in 1Q alone with leverage now under 2x: Despite a forecasted ~7% q/q decline in reported production, we are still
expecting a blowout first quarter from Antero as the operator benefited from a pair of one-off items, in addition to surging C3+ prices (AR bbl
realization up ~43%). If you recall, Antero received an $85M litigation payment in February and also utilized their FT to capitalize on elevated
natural gas pricing (~$75M impact) in that same month resulting from extreme winter weather. Including these items, and our below consensus
$144M capex estimate (~10% below street), our model estimates FCF approaching $350m and EBITDA of ~$515M (20% above Street) in the first
quarter while leverage falls below the 2x mark. The strong quarter and still robust NGL pricing puts upward pressure on AR's 2021 FCF estimate
of "over $500m" with our model pointing to over $700M (~12% FCF yield to EV) as more likely.
Shareholder returns a possibility once debt hits $2B: Now that leverage is under the 2x Net Debt/EBITDA mark and the operator is generating
steady cash flows, return of capital to shareholders becomes a real possibility and an increasing focal point for investors. For our part, we believe
the operator waits a little longer (till net debt falls to $2B at YE21) before implementing a return policy which gives them the opportunity to see
the results of the various return frameworks emerging across the E&P space (normal dividends, variable dividends, share repurchases). As of now,
we believe management would favor buybacks like they have done in the past, but believe they will be watching the results of competitors' return
strategies before making any decisions.
Recommendation: In the span of a year, Antero has made incredible progress in regard to leverage, moving from above 3.5x to RJe under 2x by
the end of 1Q, a point at which shareholder returns become realistic. We also continue to like AR's exposure to robust C3+ pricing (every $5/bbl
move equates to $210m of annual cash flows) that we see remaining elevated through 2022 as well as their peer-leading FCF yield (~12% of EV
at strip). Accordingly, we reiterate our Outperform rating, but our lowering our target price to $12/share (from $13) due to the recent pullback
in NGL prices.
Valuation: Our $12 price target is based on an EV/2021E EBITDA multiple of 4x, which is still conservatively below the E&P 10-year historical range
of 5-7x.
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AR was one of my Top Picks coming into 2021 because of surging NGL prices. My valuation is $16/share.
Expecting over $300M of FCF in 1Q alone with leverage now under 2x: Despite a forecasted ~7% q/q decline in reported production, we are still
expecting a blowout first quarter from Antero as the operator benefited from a pair of one-off items, in addition to surging C3+ prices (AR bbl
realization up ~43%). If you recall, Antero received an $85M litigation payment in February and also utilized their FT to capitalize on elevated
natural gas pricing (~$75M impact) in that same month resulting from extreme winter weather. Including these items, and our below consensus
$144M capex estimate (~10% below street), our model estimates FCF approaching $350m and EBITDA of ~$515M (20% above Street) in the first
quarter while leverage falls below the 2x mark. The strong quarter and still robust NGL pricing puts upward pressure on AR's 2021 FCF estimate
of "over $500m" with our model pointing to over $700M (~12% FCF yield to EV) as more likely.
Shareholder returns a possibility once debt hits $2B: Now that leverage is under the 2x Net Debt/EBITDA mark and the operator is generating
steady cash flows, return of capital to shareholders becomes a real possibility and an increasing focal point for investors. For our part, we believe
the operator waits a little longer (till net debt falls to $2B at YE21) before implementing a return policy which gives them the opportunity to see
the results of the various return frameworks emerging across the E&P space (normal dividends, variable dividends, share repurchases). As of now,
we believe management would favor buybacks like they have done in the past, but believe they will be watching the results of competitors' return
strategies before making any decisions.
Recommendation: In the span of a year, Antero has made incredible progress in regard to leverage, moving from above 3.5x to RJe under 2x by
the end of 1Q, a point at which shareholder returns become realistic. We also continue to like AR's exposure to robust C3+ pricing (every $5/bbl
move equates to $210m of annual cash flows) that we see remaining elevated through 2022 as well as their peer-leading FCF yield (~12% of EV
at strip). Accordingly, we reiterate our Outperform rating, but our lowering our target price to $12/share (from $13) due to the recent pullback
in NGL prices.
Valuation: Our $12 price target is based on an EV/2021E EBITDA multiple of 4x, which is still conservatively below the E&P 10-year historical range
of 5-7x.
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AR was one of my Top Picks coming into 2021 because of surging NGL prices. My valuation is $16/share.