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Look for buying opportunity in Suncor and Canadian Natural, Citigroup says 3 ?7 u# z+ s) q# {8 A' h6 [# [
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.
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0 x( j. g M; cHe 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.6 f0 Z2 | e2 q- I
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This 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.1 {. `; K U: _. A4 ~
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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.% k* p1 G: |0 r3 x( X' {
$ p% Y1 T3 N1 u, |0 ^There 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$60.
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“...Versus the level of oil prices we estimate are currently being discounted in the major Canadian oil sands players, the impact on valuations looks benign,” Mr. Leggate wrote.9 H! A6 A# j4 H/ l$ a
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So 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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