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Pitching Suncor Energy at Rotman Stock Pitch Competition 2011
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Pramod JindalBeam Ukarapong
Stock Pitch Competition 2011
November 12 2011
Overview
Suncor Energy Inc. (NYSE:SU, TSX:SU)
• Integrated energy company• Over 40 years of Oil Sands experience• Canada & International: crude oil and natural gas• Canada: crude oil, petroleum, and petrochemical products • Business units:
• Oil Sands• Natural Gas• International and Offshore• Refining and Marketing
• Price $31.44• 52 week low $23.97• 52 week high $47.27• Average daily volume 6.07M• Shares outstanding 1.57B• Market cap $49.50B
Key Statistics
As of November 9, 2011
Long Thesis: Suncor Energy Inc.
• Undervalued; Price target: $43• Strong correlation with SPTSEN Index
– SPTSEN expected to reach 347.6355 by Q2’ 2012• Strategic acquisitions
– Production level expected to reach 1 mboe/d by 2020• Opportunities
– World population (~6 billion) expected to be ~7.6 billion by 2020– Libyan stability
• Management Team– Visionary: foresee hidden fortune (first to exploit Oil Sands)
• Continued expansion of renewable energy projects • Target Oil Sands cash costs ~$30 range
– Exceed production target despit5e maintenance/shut down
Industry Outlook
• Revenue determined by Brent Oil Price (expected to increase to $122)
Source: Bloomberg
SU Stock Performance
• Strongly correlated with SPTSEN Index
Source: Bloomberg
Investment Highlights
• Current: – Firebag Stage 3: operational and production continuing to ramp up– Firebag Stage 4: expansion in offing- to be operational by Q1’ 2013 – Terra Nova maintenance due completion– Technology and innovation
• Tailings Reduction Operations (TROTM) • Recent:
– Partnership with Total E&P • Fort Hills and Joslyn oil sands• Restart Voyageur Upgrader (200,000 bpd by 2016)
• Past(2009):– Petro Canada merger
• Imminent re-entry in Libya
Financial Highlights
• Focus on debt reduction• Declared 11cents dividend, Nov 7 2011
– Consistent with 10% increase announced in May 2011
• 2009: Positive ripples from Petro Canada acquisition
– Annual savings of CAD$1.8B • Stability of future cash flow
– “American consumption of oil and gas expected to increase almost 50% by 2025” (CEO Richard George)
– Canadian oil sands production expected to increase at 6% (CAGR) to 3.3m bbl/d by 2025 (Datamonitor)
Q3 2011 Q3 2010
Revenue $1.28 B (82₵/share)
$1.22 B (78₵/share)
CFO $2.72 B $1.63 B
Comparables
P/NAV2011 2011E 2012E 2013E 2011E 2012E 2013E
Cenovus Energy 119% 8.7 7.7 7.3 8.1 7.2 6.8Husky Energy 97% 4.4 4.6 4.5 4.2 4.5 4.6Imperial Oil 97% 9 8.4 7.2 8.8 7.8 6.7
Average 97% 7 6.3 6.3 6.6 6 5.6Suncor 75% 5.8 4.7 4.2 5.2 4.5 4.2
EV/DACF EV/CFPS
Risk Profile
• Unexpected downtime and maintenance• International
– Syrian sanctions & Libyan uncertainties – European debt crises and slowdown in China
• EU’s proposed regulation (The Globe and Mail Nov 3, 2011)
• Keystone XL • Environmental issue• Foreign exchange rate exposure
Source: Bank of America
Recommendation
• Long Suncor• Target price: $43
Q&A