ROK Resources (ROK) Price Targets - Jan 26

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

ROK Resources (ROK) Price Targets - Jan 26

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From Research Capital Corp. dated 1-25-2023

Completes Acquisition within SE Saskatchewan Core Area
ACTION - Maintain BUY and Target Price of $0.85Cdn

ROK announced it has closed the acquisition of ~1,400 boe/d in SE Saskatchewan and
the disposition of non-core assets with ~400 boe/d to the same vender of the acquired
property. The total adjusted cash consideration was $23 million which was funded with
a new $75 million loan facility (see our research report data December 19, 2022). The
acquisition adds long life, low decline production with significant development potential
within the company’s core focus areas. ROK also provided H1/23 guidance. We maintain
our BUY recommendation and our $0.85 target price.

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From Eight Capital dated 1-25-2023
They rate it a BUY with a price target of $0.80Cdn

Yesterday after market close, ROK announced its H1/23 guidance with the closing of the S.E. Saskatchewan asset acquisition and debt financing:

First-half 2023 guidance outlined post S.E. Saskatchewan acquisition: ROK expects to produce between 4.2 and 4.3 MBOE/d and generate $25 - $27 million of funds from operations based on a US$80 WTI and C$3.50 AECO price assumption. The company plans on spending $10 million of capital by drilling three gross (2.63 net) wells focused on both of its core areas, S.E. Saskatchewan and Kaybob. ROK plans on allocating $10 million directly to the principal reduction of the Term Facility and expects to reach net debt of $53 - $55 million by the end of Q2/23. < My full year 2023 forecast shows operating cash flow of $52.7Cdn million.

Debt financing is highlighted by interest cost reductions: the company outlined the terms of its Senior Loan Facility, comprised of a $52.5 million term facility which carries a 2-year term with an interest rate of BA + 6.25%. The term loan will carry a monthly principal payment requirement of $2 million. In addition to the Term Loan, the company has access to a $22.5 million syndicated facility with a sliding scale interest rate of BA + 3.75%. ROK highlights that the interest cost reduction is expected to be in excess of 30%.

ROK states that it will be evaluating the option to sell certain non-core, non-operated assets: we view this as a positive since it will accelerate the repayment of debt and increase its working interest towards operated assets which aligns with ROK's overall growth strategy. We highlight that the term loan carries no prepayment penalty.

We reiterate our BUY rating and $0.80 target price. Our target is based on a 50/50 weighting of 4.0x 2023E EV/DACF target multiple and 1x our risked estimated NAVPS. Risks to our price target include commodity prices, cost inflation, equipment, rig & crew availability, and production performance.
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My Updated Forecast/Valuation model has been posted to the EPG website.
Dan Steffens
Energy Prospectus Group
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