PrairieSky’s war chest, growth prospects earn it an upgrade

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CIBC analyst Arthur Grayfer raised PrairieSky’s target price to $30 per share from $27.50 earlier

PrairieSky Royalty Ltd. earned a price upgrade from CIBC Capital Markets after posting results Wednesday that were “above expectations.”

CIBC analyst Arthur Grayfer raised the company’s target price to $30 per share from $27.50 earlier, noting that the new target price is “supported by a sustainable yield, a war chest, and long-term growth visibility due to a very large land position.”

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But the Calgary-based operator’s results were not enough to move analysts at RBC Capital Markets and National Bank Financial, who maintained their target price of $28 and $26, respectively, for the company.

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The company’s plans to repurchase up to $40 million of its shares over the next 12 months helped boost PrairieSky stock up 2.5 per cent at $25.74 in Toronto in trading on Wednesday morning.

The Calgary-based operator generates revenues from royalty-free land, has no debt on its books and expects cash flow exceeding $200 million over the next 12 months. Spun off from Encana Corp. in 2014, PrairieSky embarked on a $1.8 billion cash-and-share deal with Canadian Natural Resources Ltd to acquire its royalty lands last November.

The impact of the deal started to show in the first quarter, with production of 23,100 barrels of oil equivalent per day beating consensus estimate. In addition, non-royalty production revenues also generated $6.6 million, or around 15 per cent of the company’s first quarter cash flow.

“PrairieSky has numerous levers beyond royalty production to generate revenue, which ultimately supports a more sustainable business model,” Grayfer said in a note to clients.

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