Suncor Energy Inc. T.SU

Perspectives on Investing in SU

[Experienced]

All investors, whether they realize it or not have investment objectives which are different from each other.  In the same way companies have different ways of looking at their business and what is the best way to grow the company.

With that as background, there has been much talk about the issue of SU raising its dividend.  As some here have pointed out and I agree with their view, if you are looking for yield right now and companies which have a track record of increasing their diviidends then you should sell your SU and buy something else like a pipeline or a utility.

In the case of SU itself, I believe the corporate strategy is more complex and from reading the posts here and with all due respect, I don't think a lot of people here fully understand what management's strategy is.

1.....the shares are under what is called in the finance industry a distribution which means that the onwership of the company is changing in a dramatic way.  In the case of SU this is mainly driven by  big investors moving for one reason or another away from oil based investments.  The result of this is that the SP is undervalued since those selling have shorter timeframes than those buying and so the buyers can out wait out the sellers.  SU managment sees this and also sees an opportunity to enhance shareholder value in the long run by buying back its own shares for now.  Raising the dividend in this scenario is obviously shooting themselves in the foot.

2...mgt has also put emphasis on carbon capture and GHG iniatives.  Why?  Because the company is associated with "dirty oil" and it has begun a process to get regulatory approval to expand the mineral rights for the base plant and needs to be a more environmentally sound player to have any hope of getting the necessary regulatory approvals.

3....points 1 and 2 combined with the strategy to reduce productions costs and reduce debt will take up most of the FCF for the next year.  After that they will have lots of FCF to do something else.

4....from the perspective of The Street, this strategy is all well and good but one that is being directed towards what is thought to be dying industry (ie oil production). For this reason SU is not exciting and what is perceived to be a lack of imagination by managment or non acceptance that oil demand will decline over time has lead to a lack of interest in investing in SU and this drives down the SP

5....the answer is clearly that SU needs to trasnform itself into a renewable energy company.  Right now there is a feeling, with the current corporate strategy that they have no plans or capability to do this.  Whether this is really true or not, I have no idea but the evidence so far would suggest that this perspective is valid.  

So what does SU need to do?

A....finish out their current strategy over the next year because it makes sense

B....during this time build the capability to start the process to move to a renewable energy company or at a minimum, partner with people/companies that have expertise in renewables and then use their huge FCF to gain a big piece of this business over time through partnerships.

Without B, the SP will SU wil languish and it will simply be a bad investment.  As I mentioned in an earlier post,  I am giving them a year to show me that they are serious transforming to a renewables energy company.  If they do I will buy more and potentially overweight my investment taking advantage of a cheap SP.  In the alternative, if they don't, I will sell and move on.

I sincerely hope that they follow B since with their huge cashflow they could perhaps become one of the largest renewable energy companies in the world over the next 20 years or so.  The potential is there, it is just a question of whether management will seize this opportunity.

[Experienced]

One other point I didn't mention in my earlier post regarding Point B Following such a strategy would also entail taking over other companies in the renewable energy space and the cheapest way to do this is to use your shares as currency.  To get the highest "exchange rate" for the currency, SU would need to raise the dividend starting next year and in the years following that.

[Oldnagger]

For those of us old enough to remember, Suncor through Great Canadian Oil Sands opened the door to creating the tremendous wealth generator which is the Oil Sands. Soncor also pioneered the use of trucks to replace the conveyor belts that never worked properly. In spite of the mountains of Hooey that has been built up by the Media the fact remains that Syncrude and other products that come from

[PabloLafortune]

Buybacks are simply put financial engineering which is putting the cart in front of the horse - its kind of ludicrous that this is Suncor's raison d'etre for the next 12 months Makes you wonder if Wall/Bay street are running the show - we know the mom and pops arent thats for sure. Ask Intel $100B in buybacks later if that served them well? It didnt it was a disaster and everyone knows it.

[Chris007]

Intel is actually a pretty apt analogy...managment missteps/execution problems have left it in the dust of such competitors as Nvidia & AMD...long time investors and institutions ended up dumping the stocks, so the company ramps up buybacks...stock price-wise, the company hasn't really done anything since 2018 (i guess the was a short-lived run-up when the new ceo came in, but that quickly

[Bigbear7405]

Paying of debt and share buybacks strengthens the balance sheet. Giving all the profits to higher dividend is not strengthening their balance sheet. anyone who has spent a day in an accounting class would know this.

[Chris007]

Paying down debt strengthens the balance sheet... However, anyone who spent day in an accounting class knows that buybacks DO NOTHING to strenghten the balance sheet. It merely reduces shares outstanding (treasury stock debited, cash credited)...therefore, technically giving the remaining shares outstanding a "bigger piece of the pie"

[angelnicky]

doesnt make sence when the retired shareholders need income know on div increase not share buyback

[Bigbear7405]

Wrong. Paying down shares saves a payout of 3.4 percent. A dividend is cash drain on profits By doing share buybacks you are reducing this cash drain and allows you to recycle those profits it on other options like debt reduction which strengthens the balance sheet. I remember my accountings professors talking about it when i got my undergrad in accounting.

[Bigbear7405]

Let me explain it to you in words you understand. A dividend is a liability. A liability. When you buyback shares you are reducing this liability. When Liabilities go down the company is better of as they are not paying a dividend on the shares repurchased. How much money are they not paying annually now that 30 million shares have been cancelled?. A million or so. This million can be used to pay

[Chris007]

Yes, the company will be able to retain funds that would otherwise be used for the dividend for other things. I'm not arguing with that. The fact of the matter is, the amount is largely immaterial 30M x .84 = 25.2M Annually 75M x.84 = 63 M Annually 100M x.84 = 84M Annually Out of annual cashflow of around $10 billion The fact of the matter is, the company has approx 1.5 billion shares

[Obscure1]

" How much money are they not paying annually now that 30 million shares have been cancelled?. A million or so". They actually announced they bought back 35mm shares by the end of June, which means they have likely bought back 42mm by the end of July.  $0.84 x 35mm = how much?????? "By the end of this year they will have bought back 75 million shares, with a hundred not far

[PabloLafortune]

Buybacks are simply put financial engineering which is putting the cart in front of the horse - its kind of ludicrous that this is Suncor's raison d'etre for the next 12 months Makes you wonder if Wall/Bay street are running the show - we know the mom and pops arent thats for sure. Ask Intel $100B in buybacks later if that served them well? It didnt it was a disaster and everyone knows it.