/Posthaste Nov 1: Analysts question wisdom of Encana’s big move to the U.S., cut price target

Posthaste Nov 1: Analysts question wisdom of Encana’s big move to the U.S., cut price target

Good Morning!

Analysts and industry observers are questioning the wisdom of Encana Corp.’s decision to move its headquarters to the United States.

CIBC Capital Markets said actions such as changing corporate names and headoffices rarely create desired outcomes.

Analyst Jon Morrison wrote that “we find ourselves a bit perplexed as to the path that Encana is taking.”

“While we view there to be some merit to the company re-domiciling in the U.S., we do not believe the fact that Encana has been a Canadian-headquartered entity has led to any material share price underperformance,” the brokerage noted, adding that longer-term share price outperformance can only be achieved with continued performance, free cashflow generation.

Other analysts think the company that might soon be known as Ovintiv may become a takeover target. A report by Sanford C. Bernstein titled “Is ‘Ovintiv’ Latin for ‘takeout candidate’?” noted that the move “removes the potential poison pill” of a federal law known as Investment Canada Act which has prevented cross-border deals in the past including BHP Group’s proposed acquisition of Potash Corp. about a decade ago, according to a Bloomberg news report.

The relocation of its main office will increase access to capital, including passive investors, but analyst Bob Brackett isn’t convinced: “E&P multiples are set by the quality of the assets and organization and ECA’s share price already reflects the market’s view and so a rerating of the stock on the redomiciling is not obvious to us.”

In a pithy comment, Peters & Co. noted “there are currently a number of other Canadian and U.S. alternatives that provide higher growth over the next few years and are also trading at discounted multiples.”

Meanwhile, Eight Capital analyst Phil Skolnick said it’s cutting his recommendation on Encana Corp. to neutral from buy.

National Bank Financial Group also cuts its price target to US$7.50 from US$8 previously. The stock fell 6.7 per cent on the TSX to $5.16 per share. “We believe it (the move) could provide future optionality for further separation from its Canadian roots, which could set up to accelerate possible A&D (acquisitions and divestitures) activity.”

Here’s what you need to know this morning:

  • Representatives from Indigenous, youth, labour, health care, social justice and environmental movements will hold a press conference to call on the minority Liberal government to move quickly to show Canadians that it will fulfil its climate promises
  • The Economic Club of Canada presents Victor G. Dodig, president and CEO, CIBC, with a speech about the importance of Canada’s energy sector
  • University of Regina researcher Patricia Elliot to be in court to try to get inspection reports from the 2016 Husky oil spill into the North Saskatchewan River released
  • Notable Earnings: Sleep Country Canada Holdings Inc., Fairfax Financial Holdings Inc., Aecon, TC Energy Corp., Imperial Oil Limited, Baytex Energy Corp., Cameco

Canada’s oilpatch has been struggling since oil prices bottomed out in late 2014, so its troubles are not exactly a new development. Roughly 50,000 jobs have been lost over the past five years, and an estimated 7,600 positions are at risk of being lost in 2019, according to Petroleum Labour Market Information, a division of Energy Safety Canada. The unemployment rate among young men in Alberta is now at a whopping 19.9 per cent, up almost four percentage points from a month ago, writes Vanmala Subramaniam.

Encana CEO Doug Suttles.

Ted Rhodes/Postmedia

Policymakers have been scrambling to keep up with the traditional energy industry’s downturn and quell a brewing sense of resentment and hopelessness in the Western provinces. On the election trail, the rhetoric of “retraining oil and gas workers” to transition to jobs in renewable energy or cleantech was frequently touted as a solution, but the reality of that transition is incredibly complex, and involves far more than just retraining.


— Please send your news, comments and stories to [email protected]. — Yadullah Hussain @yad_Fpenergy

With files from The Canadian Press, Thomson Reuters and Bloomberg


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