On Tuesday, JPMorgan (NYSE:JPM) updated its stance on Meg Energy (MEG:CN) (OTC: MEGEF (OTC:MEGEF)), raising the shares price target to C$34 from C$33, while keeping a Neutral rating on the stock. The revision follows a week in which Meg Energy's performance stood out, backed by a solid fourth-quarter report and the unveiling of a CEO succession plan.
Meg Energy concluded the year with robust operations, achieving its projected production level of 110,000 barrels per day. The company also successfully reduced its net debt to US$730 million, down from US$885 million in the third quarter. This progress positions the company well to hit its forecasted net debt floor of US$600 million by the third quarter of 2024, assuming a West Texas Intermediate (WTI) crude oil price of US$75 per barrel.
The company's outlook for 2024 indicates a year with minimal maintenance requirements, which is expected to decrease operational risks. Additionally, the commencement of the Trans Mountain Expansion (TMX) project is anticipated to bolster the Western Canadian Select (WCS) differential and provide Meg Energy with more flexibility in the second half of the year.
Despite these operational tailwinds, the firm noted that capital expenditures for growth are set to increase significantly, from virtually none in 2023 to approximately C$100 million in 2024 and C$190 million in 2025. This uptick in spending is likely to impact free cash flow and, consequently, the level of share buybacks, which had reached 100%.
Acknowledging Meg Energy's competent management of its sole asset and the potential benefits of its highly attractive growth project, which could be added at C$20,000 per flowing barrel, JPMorgan's analysis suggests that the company's stock is fairly valued in comparison to its peers. The report concludes with the acknowledgment of Meg Energy's early-stage investment cycle and reaffirms the Neutral position based on an updated financial model.
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