Vermilion Energy: Brick By Brick, Deal By Deal

Summary

• Vermilion Energy is a strong buy due to its significant European gas assets and the strategic Westbrick acquisition, boosting future income and FCF.
• VET's diversified operations in Europe and North America, combined with a solid hedging strategy, position it well against commodity price volatility.
• The Westbrick acquisition will enhance VET's asset base, increasing production capacity and providing substantial cash flow, supporting future dividend increases and shareholder returns.
• Despite a recent market slump, VET trades at a 22% discount to book value, with a 12-month target price of $12.6, offering a compelling investment opportunity.

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Brief Thesis Walkthrough

Vermilion Energy (NYSE:VET)(TSX:VET:CA) has a significant asset base in Europe, with a large part of that being liquid natural gases. VET estimates that European gas production will be responsible for 37% of the total fund flows

Analyst’s Disclosure: I/we have a beneficial long position in the shares of VET either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Zelenka]

will 25 percent tariff have an effect? imho it could go even lower...

[flowthrough]

@Zelenka I don't see tariff having any effect on VET. A lot of their cash flow is from Europe, mainly European natural gas produced in and sold in Europe. Have some Australian production, but sold to Asia. Some US production sold to US. Then some Canadian natgas production (like Westbrick), but again Canadian natgas will mainly be sold in Canada (or to Canadian LNG export terminals). Really Tariff impacts Canadian tar sands producers, like CVE, SU, MEG, CNQ, and IMO the most.

[Zelenka]

@flowthrough good to know. thanks. I have been following VET for about 2-3 years and the stock in going only down a lot. All the time buy/strong buy articles and not pleasant surprises after earnings

[JamesK101]

Dead money unless something changes materially. Nobody cares about their, admittedly, good valuation and prospects for EU gas expansion. On last ER they didn't have a single analyst call in. That tells you all you need to know. I will ONLY trade this opportunistically through options.

[flowthrough]

The Westbrick deal moved VET from very low debt to much higher debt. While I think it is reasonable to think AECO pricing will increase, the deal increased VET's exposure to Canadian natgas which today sells for give away pricing. Yes, they have 25% liquids, but it is 75% natgas on a boe basis (and 50% on revenue basis). Unless AECO pricing moves up, or the synergies from the acquisition are very good, the deal will look bad. Also, given VET's rock bottom pricing, why buy assets, just buy back stock. In any event, it is a 2026 story. By then German natgas wells will start producing and hopefully AECO pricing will have moved up a bit (maybe from very bad to bad).

[billknowsall]

Not a single comment after nearly a week? This tells me that this company has little interest in it. I know from following (and having a position in them) them that they burned a lot of bridges with past failures to manage the company well. As management changes occur and the business improves, perceptions may change. At least there aren't any hostile comments now.

[Maxime Emile]

@billknowsall It's a real shame since the company looks absolutely fantastic to be buying right now!