VERMILION ENERGY INC. (VET): what the price assumes

In the published model solve dated 2026-Q2, anchored at $12.84, VERMILION ENERGY INC. (VET) is priced for today's economics sustained for ~5.8 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-19.

Generated: 2026-09-07 · Exported: 2026-09-09 · Source: https://boothcheck.com/report/VET

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 9.9% cost of capital; growth searched up to the 25% self-funding ceiling.

How unusual the bet is: n/a

Valuation X-Ray

The price is supported by earnings-power and growth-DCF value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Earnings, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.3%); the inversion above states its own rate.

Per-Model Detail (n=7)

Solvency

Leverage and coverage are computed on normalized mid-cycle operating income (mid-cycle margin 8.9%); the trailing year was depressed.

Bullet Takeaways

• Vermilion is an international gas producer whose distinguishing feature is direct European exposure: Q1 2026 output averaged 125,618 barrels of oil equivalent a day, roughly 72 percent gas, split across Canadian gas, European gas priced off premium hubs, and liquids.
• The risk is leverage on a cyclical business: interest is covered only about 1.2 times, and net debt sits close to eight times mid-cycle operating income, so a downswing in gas prices squeezes both cash flow and the capacity to carry that debt.
• The next print lands in early August 2026; debt has fallen by roughly 770 million Canadian dollars over the past year, the dividend was raised 4 percent for a fifth straight year, and European gas prices remain the swing factor.

Bull Case

Read Vermilion as what it is: a cyclical energy producer near the low point of its cycle, which changes how the numbers should be read. Trailing operating income is deeply negative, near 377 million dollars in the red, dragged there by soft gas prices and writedowns rather than by a broken business. Judge a cyclical on that trailing figure and you conclude the company loses money as a matter of course. Judge it on the earnings it makes across a full cycle and the picture inverts. On mid-cycle economics the operating margin runs near 8.9 percent, and the assets throw off real cash: the first quarter alone generated 232 million Canadian dollars of fund flows and 98 million Canadian dollars of free cash flow, with controllable costs cut 25 percent from a year earlier.

The differentiator is geography. Most North American gas producers sell into Henry Hub and AECO, some of the cheapest gas on earth; Vermilion sells a meaningful slice of its production into European hubs, where the price the quarter averaged sat many times above North American benchmarks. That European window is the reason the company can fund a growing dividend and pay down debt in a period when pure North American peers are struggling. It is also why the balance sheet is mending: net debt has come down by roughly 770 million Canadian dollars over the last twelve months, the company agreed in March 2026 to sell its remaining Croatian stake to speed that further, and it is expanding its German gas position where the netbacks are richest.

What makes the value case is where the price sits against the methods. Value Vermilion on its assets and the methods land right around today's price; value it on its normalized earnings power and they land well above it. Only the growth-based cash-flow method sits below the price, which is the tell: the market is not paying a growth premium here. The share count has edged down about 1.2 percent a year as the company buys back stock, the dividend has risen for five consecutive years, and the debt is falling. Buy the asset base near cost, get paid to wait, and let a deleveraging balance sheet do the rest: that is the bull case, and it does not require the commodity to spike.

Bear Case

Every energy producer earns whatever the commodity gives it, and that is the first problem with Vermilion at this price. An exploration-and-production company does not set the price of its output; gas and oil markets do, and this is a business whose recent free cash flow rode a European gas window that can close as fast as it opened. Price the company off a strong quarter and you are extrapolating peak conditions into a trough-prone business. European gas is the most volatile major gas market in the world, capable of trading at a large premium one year and collapsing the next, and roughly half of Vermilion's European volumes are unhedged beyond the current book. The earnings that make the stock look cheap are not the earnings it will necessarily keep.

Leverage turns that volatility into an existential variable rather than an inconvenience. Net debt sits close to eight times mid-cycle operating income, and interest is covered only about 1.2 times, which is thin for a company whose cash flow swings with the gas price. In a strong price environment the debt falls and the story is deleveraging; in a weak one the same debt load consumes the cash flow that would otherwise fund the dividend, the buyback, and the drilling needed just to hold production flat. Producing wells decline every year, so a chunk of the capital budget buys no growth at all, only standing still. When prices fall, the choice narrows to cutting the payout, cutting the capital that arrests decline, or letting the debt ratio climb.

The price is not asking for nothing, either. To support today's level the business has to lift its operating margin to about 3.3 percent from the deeply negative trailing figure near negative 30 percent, and then compound company-wide operating profit at roughly 19.8 percent a year over a five-year stage. That is within what Vermilion has managed in good stretches, but history is unkind to the duration: only about 43 percent of comparable fast-growers sustained that pace for even five years. The bet is not that Vermilion recovers off the trough, which it plausibly does, but that a levered, price-taking producer holds an above-average recovery together long enough, through a commodity cycle it does not control, to earn the price.

Valuation

At $9.82 (July 19, 2026) the market is paying about 21 times Vermilion's mid-cycle operating income, and inverting that price is more useful than any single fair value. Because the trailing year is a cyclical trough, the honest read normalizes through the cycle rather than off the trough quarter, and on that basis the price embeds a specific recovery: an operating margin climbing to about 3.3 percent from the deeply negative trailing figure near negative 30 percent, and company-wide operating profit compounding at roughly 19.8 percent a year over a five-year stage. That recovery is within what the company has delivered before; the question the price raises is not the rate but how long it must hold.

The way the methods disagree is the argument for the value case. The asset-based methods land right around today's price, and the earnings power lens, run on normalized profit, lands well above it. Peer multiples sit near the price as well. Only the growth-based cash-flow method comes in below the price, sitting about 2.2 times under it. Read together, that pattern says the price is supported by what the company owns and what it earns through a cycle, not by a growth premium the market is extrapolating. For a cyclical trading around the value of its asset base, that is the more comfortable end of the risk spectrum, provided the balance sheet survives to see the recovery.

Which is where the caution lives. This is not a net-cash company with a cushion; net debt runs close to eight times mid-cycle operating income and interest is covered only about 1.2 times, so the downside is governed by the debt, not by the assets. The mitigant is direction: management has been paying the debt down, the share count has edged lower by about 1.2 percent a year, and the dividend has kept rising. The value the methods point to is real, but it is levered value, and the gap between a comfortable outcome and a painful one is set less by Vermilion's rock than by the price of the gas that comes out of it.

Catalysts

Vermilion's first-quarter 2026 results, reported May 6, were the operational high point of the recent run: production of 125,618 barrels of oil equivalent a day beat the top of guidance, fund flows reached 232 million Canadian dollars, free cash flow was 98 million Canadian dollars, and net debt fell again, down roughly 770 million Canadian dollars over the trailing year. The board raised the quarterly dividend to 0.135 Canadian dollars per share, a 4 percent increase and the fifth consecutive annual raise. The next print lands in early August 2026, and the figures to watch are the debt trajectory and European gas realizations.

The strategic moves all point the same way: toward European gas and away from debt. Vermilion expanded its German position and is progressing the Wisselshorst development, while agreeing in March 2026 to divest its remaining 60 percent stake in Croatia's SA-07 block to accelerate debt reduction. For 2026 the company guides to full-year production around 119,500 barrels of oil equivalent a day, and it has hedged a large share of the coming year to protect cash flow, with roughly half of European gas, most crude, and about half of North American gas covered.

The external read is neutral rather than enthusiastic. The most recent analyst position on the Toronto listing is a Hold with a price target of 19.00 Canadian dollars, a level that sits above the current US-listed share price once the currency is accounted for, crediting the deleveraging and the European window while withholding judgment on the durability of the gas price that drives both.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• BKV (BKV CORPORATION)
• FY2025 10-K: …resources, pipelines and personnel, which has delayed development drilling and other exploitation activities and has caused significant price increases. Competition has been strong in hiring experienced personnel, particularly in the engineering and technical, accounting and financial reporting, tax and land…
• FY2025 10-K: …and personnel during the spring and summer months, which could lead to shortages and increase costs or delay our operations. Similarly, winter months may bring about delays in operational capabilities and efficiency of execution related to new and existing supply. Competition The oil and gas industry is very…
• HLX (Helix Energy Solutions Group, Inc.)
• FY2025 10-K: …well control purposes. Our Production Facilities segment also includes acquired mature deepwater offshore wells and related subsea infrastructure. 7 Table of Contents GEOGRAPHIC AREAS We primarily operate in the Gulf of America (deepwater and shelf), Brazil, North Sea, West Africa and Asia Pacific regions. Our North…
• FY2025 10-K: …renewable energy projects to deeper water and other regions. The offshore renewable energy sector also has country-specific regulations, restrictions, incentives, subsidies and tax credits, that if revised negatively, can affect our customers' needs for our services. Stagnant or declining economic conditions, which…
• MNR (Mach Natural Resources LP)
• FY2025 10-K: …reserves will decrease, and our business, financial condition and results of operations would be materially and adversely affected. Competition in the oil and natural gas industry is intense, making it more difficult for us to acquire properties, market natural gas, secure trained personnel and raise additional…
• FY2025 10-K: , the weighted average cost of capital for industry peers, which represents the discount factor and risk adjustment factors based on reserve category. Price assumptions were based on observable market pricing, adjusted for historical differentials, while cost estimates were based on current observable costs inflated…
• MGY (Magnolia Oil & Gas Corp)
• FY2025 10-K: …disadvantage or may be forced by competitive pressures to implement those new technologies at substantial cost. In addition, other oil and gas companies may have greater financial, technical, and personnel resources that allow them to enjoy technological advantages and that may in the future allow them to implement…
• FY2025 10-K: 31%, 24%, and 12% of the Company's combined oil, natural gas, and NGL revenue. For the year ended December 31, 2023, three customers, including their subsidiaries, accounted for 25%, 22%, and 11% of the Company's combined oil, natural gas, and NGL revenue. No other purchaser accounted for 10% or more of Magnolia's…
• AESI (AESI)
• FY2025 10-K: …and cash flows. Additionally, the increased competitiveness of alternative energy sources (such as wind, solar, geothermal, tidal and biofuels) could reduce demand for oil and natural gas and therefore for our products and services, which would lead to a reduction in our revenues and negatively impact our business,…
• FY2025 10-K: …We would expect this trend to continue as oil and natural gas production increases. 18 Competition The market in which we operate is highly competitive. We compete with both public and private large, national producers and small, regional or local in-basin proppant providers, such as Iron Oak Energy Solutions,…
• KOS (KOSMOS ENERGY LTD.)
• FY2025 10-K: …and cannot be predicted at this time. Competition The oil and gas industry is competitive. We encounter strong competition from other independent operators and from major oil companies in acquiring licenses and leases. Many of these competitors have financial and technical resources and staff that are substantially…
• FY2025 10-K: …implemented and pursued in recent years or any future restrictions, whether through legislative or regulatory means or increased or broadened permitting and enforcement programs, foster uncertainties, delays or increased costs in our offshore oil and natural gas development or exploration activities, then such…
• VNOM (VNOM)
• FY2025 10-K: …base rate (which is equal to the greatest of the prime rate, the federal funds effective rate plus 0.50% and 1-month term SOFR plus 1.0%, subject to a 1.0% floor), in each case plus the applicable margin. The applicable margin ranges from 0.250% to 1.125% per annum in the case of the alternate base rate loans and…
• FY2025 10-K: …risk and to protect our balance sheet and cash flow . We use a combination of derivative instruments to economically hedge exposure to changes in commodity prices and maintain financial and balance sheet flexibility. 3 Table of Contents Competitive Strengths We believe the following competitive strengths will allow…
• HESM (HESM)
• FY2025 10-K: …disposal services will be reduced regardless of whether we continue to provide other midstream services for their production, and our financial condition and results of operations could be adversely affected. 25 Table of Contents We may not be able to significantly increase our third‑party revenues due to competition…
• FY2025 10-K: …Ambitions and disclosures related to ESG matters subject us to numerous risks that may negatively impact our reputation and Class A share price or result in other material adverse impacts to the Company. Chevron takes actions to help lower the carbon intensity of its operations while continuing to meet the demand for…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.