Freehold Royalties Ltd T.FRU

Alternate Symbol(s): FRHLF

Freehold Royalties Ltd. is a Canada-based royalty company. The Company manages non-government portfolios of oil and natural gas royalties in Canada with an expanding land base in the United States. Its primary focus is to acquire and actively manage royalties, while providing a lower risk income vehicle for its shareholders. Its total land holdings encompass approximately 6.2 million gross acres in Canada. It has royalty interests in more than 19,000 producing wells and almost 400 units spanning five provinces and eight states and receives royalty income from over 360 industry operators throughout North America. It has two geographical segments: Canada, which includes exploration and evaluation assets and the petroleum and natural gas interests in Western Canada, and US includes petroleum and natural gas interests primarily held in the Permian (Midland and Delaware), Eagle Ford, Haynesville and Bakken basins largely located in the states of Texas, Louisiana, and North Dakota.

TSX:FRU - Post by User

Freehold Royalties Ltd > TD

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Comment by BCONTVentureson Jan 15, 2021 7:19am

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Post# 32304209

RE:TD

Many thanks for your posts retiredcf. I've been a shareholder since 2012 with FRU and continue to accumulate from time to time. (The DRIP helps compound my holdings as well).

I've always found FRU's management to do a top notch job while being conservative. Great job all around.

retiredcf wrote: Was previously a shareholder but got out last summer due to sector weakness. Things now look to be improving so jumped back in at the open this morning. GLTA

Freehold Royalties Ltd.

(FRU-T) C$5.58

TD Now Forecasting FRU to Double Dividend at ~US$50/bbl WTI

Event

TD Forecasting Material Dividend Increase

Impact: POSITIVE

Previous Sharp Dividend Cut Prudent at the Time: During the height of the COVID-19-related collapse in oil prices, Freehold reduced its monthly dividend to $0.015/share (from $0.0525/share). In our view, this was a prudent measure to protect the balance sheet in the face of material uncertainty - from weak oil prices and the potential that third-party operators may shut-in production. More recently, the monthly dividend was nudged up modestly to $0.02/share.

However, Headwinds Responsible for Low DPS are Now Past: The fears motivating the prior cut have subsequently subsided. Spot WTI and the average WTI future strip price through 2022 are now >US$50/bbl. Although some producers opted to shut-in production, the vast majority has been restored.

TD Now Est. FRU Will Double the Dividend, Bumping Yield to ~9%: Freehold's last declared dividend results in a payout ratio significantly below the low-end of the company's payout target of 60-80%. Should WTI trend in line with our ~US$50/ bbl assumption, we forecast Freehold will double the dividend to $0.04/month with the YE-2020 results release in early March. This equates to a post-increase yield of ~9% - sustained with only ~60% of go-forward FCF at US$50/bbl WTI. Given Freehold's historical conservatism around guidance, we acknowledge that Freehold may increase to this level in more than one step.

Post TD Est. DPS Increase, $40 Million of Annualized FCF Remains to Reduce Debt or M&A: If this is applied to the balance sheet, we estimate FRU will exit 2021 with D/CF of only 0.3x, declining to nil at YE-2022E. Alternatively, if the TD estimated ~$40mm of annualized FCF were used for M&A at the metrics of the last transaction (which are admittedly very good), this could add >$6mm/yr (~6%) in FCF (enough to support an incremental 5-6% dividend increase).

TD Investment Conclusion

Freehold offers a very compelling combination of robust FCF (13% 2021E FCF yield), high FCF margins (~85% of revenue), low leverage (YE-2021E 0.3x D/CF), generally flat production profile (at no capital cost to FRU), potential for FCF-funded acquisitions, and probability of a material near-term dividend increase. We maintain our BUY rating and $9.00 target.