is MEG a hold in 2022/2023? What returns can we expect?For those of you that aren't sure if they should hold this gem, let's break down the path forward:
1st step - Debt level down to 1.7b, which will be reached around mid-march.
2nd step - Upon reaching 1,7b debt, they will announce a NCIB to repurchase shares on the market. This gives apx. 25 million of free cash flow per month towards NCIB, and 75 million towards further debt repayment. The NCIB represents about 75 000 shares per trading day at 15$ per share.
3rd step - Upon reaching 1.2b debt (september), further guidance will be provided to the shareholders on where the excess cashflow will be allocated. My assumption is at this point, we will have a share price of about 24$, and they will announce an annual dividend of about 1$, which is about a 4% YIELD. The dividend will reprensent about 25% of the FCF, while the NCIB is also 25% (about 325 million each). The 50% remaining will be allocated towards lowering the debt level below 1.2 billion. (Year end with 0.9 billion).
Now what returns can you expect? Lets round up some numbers and assume the stock started the year at 12$ CAD.
As per my expectations, I should get the
following returns in 2022:
- 100% on the stock price (24$)
- 1 quartely dividend of 0.25$
If it doesn't get you excited, I'm not sure what will. And I can already start dreaming about 2023 where MEG should start the year with debt/cash flow ratio of 0.7
This is my opinion and those numbers are based on assumptions of FCF and public information. Some numbers have been rounded to make simplist calculations.
DYODD