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Look for buying opportunity in Suncor and Canadian Natural, Citigroup says . C( \% f, c- e. |0 m7 L0 B9 v
The negative after-market reaction to Alberta’s proposed royalty changes for the energy sector appears overdone and may present an opportunity to buy some names in the sector, says Citigroup analyst Doug Leggate. 8 c) L' J( _# ^
4 N0 b+ x _( V+ U: ~) GHe recommends keeping an eye on preferred names in the sector like Suncor Energy Inc. (SU/TSX) and Canadian Natural Resources Ltd. (CNQ/TSX), but admits there will likely be a strong response to any change from the industry.4 _( E9 n @# f& ? i% B9 \/ U0 [7 ~
+ ^( G2 a/ {. B3 H1 c, _% A& Y0 F5 bThis view is partly a result of oil prices. Citigroup has a long-term oil price assumption of US$60 per barrel, which means the changes are not considered material enough to warrant any alterations to its earnings or target prices.) G9 g9 i: ~7 }. T
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At first glance, the proposed regime looks significantly less onerous than feared, Mr. Leggate said in a research note, adding that with US$55 oil, there would be no changes to his assumptions.# x( v, s* G3 f, B3 _6 U
* z. K( \% P& x, F6 c: XThere would be an impact with prices at US$100 and the royalty rate increases on a sliding scale with a cap at US$120 for WTI crude, he said, adding that the sector is discounting prices below US$60. * `0 M/ M0 M! X) \( i, Q( G
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“...Versus the level of oil prices we estimate are currently being discounted in the major Canadian oil sands players, the impact on valuations looks benign,” Mr. Leggate wrote., s" Q+ ?' B# b j7 m. L7 Z2 }
; u( s. ]2 K* x- s/ o8 oSo while he acknowledged that the new regime gives away some upside, the analyst thinks plenty of core value remains with investors. |
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