Company Update: Sundance Energy Australia Full credit: James...

Company Update: Sundance Energy Australia

Full credit: James Bullen [Cannacord Genuity Aust]

'member when leverage was a good thing?

Agreement from non-OPEC to cut production by almost 600kbbl/d and an indication that Saudi Arabia may cut more than previously expected has driven WTI futures up by close to 5%. Sundance is the most oil-leveraged name in our coverage universe and the valuation "lag" between it and its North American peers continues to surprise us. We retain our BUY rating and A$0.34ps price target which is based on a long-term WTI oil price of US$60/bbl.

Understanding the leverage ... The company re-based its costs to manage the down market (F&D <15/boe, fully loadedcash operating costs of ~$10/boe) but, in our view, it remains one of the most oil leveragednames on the ASX through 1) its US$172M in net debt; and 2) the nature ofunconventional oil development.

The valuation impact … A US$10/bbl move in oil prices impacts our valuation by ~$0.10ps and our 2017eEBITDA by ~$18M. See figures 3 and 4.

An alternative to the consensus play .. In Australia BPT been the consensus way to play the early stages of oil price recoveryamongst the E&Ps. It has clearly defined leverage, a strong balance sheet, generatesfree-cash-flow and conventional assets which are well understood by the market.That said with the stock up almost 70% in less than 3months and now pricing in 1) US$38/boe of 1P; 2) US$38k/boepd of production; 3) US$70/boe long-term oil on CGe;and 4) a 35%+ premium to FactSet consensus analyst price targets, we believe there isvalue in looking at discounted alternatives like SEA.

Trading at a discount to US peers … Sundance Energy currently trades on 3.1x EV/EBITDA (Factset 2017 consensus), $36.3kper flowing boe (2016 exit rate) and $11.7/boe of proved reserves. This is a substantialdiscount to both US peers and recent transaction metrics (see figure 5).

We sit at the bottom end of production guidance … Our full year production estimate of 6,400boe/d (excl flare) is based on a 2016 exit rateof 9,500boe/d. This is at the very bottom end of current exit rate guidance.