Vermilion Energy - Dividend and growth comfortably covered
Vermilion Energy offers a geographically diverse production base, the ability to fund an 8.1% dividend yield and a forecast FY19 c C$530m capital programme, all achievable even at realised commodity prices c 3% below our base case (WTI US$56.1/bbl, Brent US$62.8/bbl). We adjust our FY19 and FY20 forecasts to reflect lower short-term commodity price expectations (based on the latest EIA forecasts of 12 March 2019). EIA’s FY19 WTI moves from US$64.9/bbl to US$56.1/bbl (-14%), driving down our forecast FY19 FFO from C$1,200m to C$982m (-18%), comfortably above the $954m we estimate is required to cover dividend, maintenance and growth capex. Our valuation falls from C$54.5/share to C$47.5/share, based on a blend of P/CF, EV/EBIDAX, DDM, and FCF (plus growth) multiples. The valuation remains highly sensitive to commodity price assumptions. We provide a sensitivity to these key inputs in this note.Vermilion Energy, through its subsidiaries, is engaged in the business of oil and natural gas exploitation, development, acquisition and production in Canada, France, the Netherlands, Australia and Ireland.
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