Vermilion Energy - Macroeconomic headwinds dictate dividend cuts

Vermilion Energy has recently reported record annual production of 100.3kboed and fund flows from operations (FFO) of C$908m for FY19. Key drivers to increased production include a full-year contribution from the Spartan assets acquired in May 2018. However, following recent macroeconomic headwinds such as the impact of the coronavirus and the Russia/Saudi Arabia price war, Vermilion updated its capex guidance and production estimates for the year. These significantly affect results; hence management additionally announced a dividend cut to C$0.02/share per month. In light of these recent events, in addition to short-term commodity prices expectations, our updated valuation decreases to C$9.7/share from C$38.3/share (down 75%).