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Is investing in Cenovus Energy shares worth it? Full analysis with commentary by Daniel Gladish

Jamie Cameron
9. 10. 2022
6 min read

In a previous interview with Daniel Gladiš, we learned that Cenovus Energy was the latest addition to the Vltava Fund portfolio. In today's article, we take a closer look at this company, which again includes the comments and opinion of Daniel Gladish, who contributed his views on the potential, risks and expectations for the future.

Cenovus Energy $CVE-0.1%

This article is also a follow-up to a previous interview with Daniel Gladish: Daniel Gladish: We see most opportunities in North America, where one undervalued oil producer has caught our eye | Bulios

Cenovus Energy $CVE-0.1%

Initial introduction to the company 👇

Cenovus Energy is an integrated oil company focused on creating value through the development of its oil assets. The company is also engaged in the production of conventional crude oil, natural gas liquids and natural gas in Alberta, Canada, with refining operations in the US.

Its business activities include: crude oil and natural gasproduction , crude oil sales to refiners, refining of its own crude oil, gasoline sales at the pump, crude oil sales to end users in the U.S., and sales of various compounds (such as ethanol).

This is a fairly typical business mix for an integrated energy company. What makes Cenovus stand out is its commitment to growth. In a year when many people are complaining that oil companies are not investing enough in production, Cenovus announced two big deals: the purchase of 50% of the Toledo refinery and 50% of the Sunrise oil field - both from British Petroleum. BP is selling the assets cheaply, so Cenovus may reap handsome profits from them in the future.

These low-cost acquisitions may give Cenovus an advantage over its competitors. When you buy assets cheaply, you usually enjoy higher margins than your competitors. Cenovus is already experiencing dramatic earnings growth this year with its 50% stakes in Toledo and Sunrise. Another competitive advantage Cenovus has is its break-even oil price.

  • On the face of it, the company looks very good as it has a decently diversified portfolio of earnings, looks relatively cheap compared to its competitors, and Cenovus has secured 2 favorable acquisitions that will boost their competitive advantages.


Cenovus Energy is showing incredible financial strength across all of its business segments this year. In its most recent quarter, it delivered:

  • $2.9 billion in cash from operations, an increase of 118%.
  • Adjusted cash flow of $3 billion, up 71%.
  • Net debt of $7.5 billion, down 39%.
  • Free cash flow of $2.2 billion, an increase of 77%.
  • Net income of $2.4 billion, an increase of 981%.

All in all, pretty strong results. Economic growth was phenomenal and cash flow metrics were also good. Over the last five years, $CVE-0.1% has grown at the following CAGR:

  • Revenue: 35%.
  • EBIT: 77%.
  • Normalized net income: 68%.
  • EBITDA: 38%.

The five-year compound growth rates look very good. In addition, we have an ever-shrinking debt burden that may pave the way for higher earnings even if oil prices don't move.

Risks 👇

  • Clearly, the erratic nature of the oil price will be a top priority. Will it hold steady, fall, or go even higher? No one can say with accuracy at the moment.
  • Raise Interest Rates - As much as many would like to see it, inflation is still not a dead issue that the Fed doesn't have to react to and adjust interest rates and its aggressive strategy accordingly.
  • I also found risk in the form of potential ESG issues. There is enough speculation that British Petroleum sold its valuable assets to Cenovus for next to nothing because of ESG concerns. Oil refineries and other oil assets essentially create emissions that can lead to environmental damage. The ESG risk to oil companies may be overstated, but it is real.

Intrinsic value

I used the ALFA SPREDAwebsite to determine intrinsic value .

The intrinsic value of one share of $CVE-0.1% according to ALPHA SPHREAD is 32,945 Canadian dollars = $24.12. Compared to the current market price of 24.6 CAD ($18.01), Cenovus Energy is still undervalued.

But how does Daniel Gladish see it?

Daniel Gladish - co-founder of the investment fund Vltava Fund.

What exactly led you to invest in Cenovus Energy? Do you think that the purchase of the Toledo refinery and the Sunrise oil field will bring success?

Recent acquisitions did not play a role in our decision. The investment idea here is very simple. The share price implicitly incorporates the oil price trend much lower than where we see it. We think that the oil price will be much higher than what the share price corresponds to in the medium to long term, and we therefore expect free cash flow to be much higher than where the market expects it to be. We therefore consider the stock to be significantly undervalued.

Cenovus is currently in an excellent position to generate a pile of cash going forward. In addition, the company also pays a dividend, do you think the free cash will go specifically to bolster the company in the future, or is it in the company's interest to continue to invest aggressively and reduce debt?

By the end of this year, net debt should be below 4 billion. Almost all of the free cash flow will then go to shareholders primarily through share buybacks. The free cash flow yield is currently 15-17%. Very high.

Of course, investors will also be interested in the potential risks of this investment. What do you see as the risks of Cenovus Energy?

There are two key risks. The first is that our estimate of the future oil price is too high. We are aware of that, but we have a big safety cushion on our side. The second risk is that management starts wasting money on overpriced acquisitions instead of buying back its own shares. We need to monitor this carefully.


Daniel Gladiš has presented us here with clear arguments why he likes CVE shares and thinks they are undervalued at Vltava Fund, but as with any investment, you have to take risks into account. Personally, I really like Cenovus, they are aggressively reducing debt, posting solid numbers, paying a dividend, buying back shares, keeping a relatively low P/E, and can positively benefit from their recent acquisitions.

  • Did you enjoy this article, which was again spiced up with Daniel Gladish's views?
  • How does Conovus Energy look to you?
  • Do you have shares of $CVE-0.1% in your portfolio?

Please note that this is not financial advice. Every investment must go through a thorough analysis.

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