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Vermilion’s investor day highlighted its self-funded growth and income business model. Management’s commitment to providing shareholders a sustainable dividend is supported by a deep and diverse portfolio of assets resilient to a volatile commodity price environment. Project inventory supports a recycle ratio of over 2.5 times and the short-cycle nature of growth capex means spend can be rapidly diverted to projects that offer the highest returns or are curtailed. Our base case valuation falls to C$54.5/share (from C$57.9/share), largely driven by a global E&P sector de-rating. The share price is well supported by an 8.2% yield, which we believe is fully covered (in addition to growth capex) at c 20% below our base case commodity price forecasts for FY19.

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