OTCPK:VREYD - Post by User
Post by
retiredcfon Feb 23, 2021 10:25am
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Post# 32636169
RBC Upgrade (WCP)
RBC Upgrade (WCP) February 22, 2021
Whitecap Resources Inc. Model update
Our view: We have updated our estimates to reflect RBC's updated commodity price outlook. In our minds, Whitecap remains a strong candidate for continued oil consolidation with our updated estimates suggesting ample flexibility to fund acquisitions and/or increased activity over time.
Key points:
Updating estimates to reflect RBC's commodity outlook. As outlined in RBC's Global Energy Commodity Price Update, we have increased WTI pricing in 2021E/22E to $62/$63 from $52/$57 previously. Alongside this, we have made adjustments for our model, increasing capital spending and the dividend payout in 2022. We now estimate the company will spend $330 million/$550 million in 2021E/22E (previously $300 million/ $425 million) with capital bumped in Q4 of this year. Production estimates increase 1%/2% in 2021E/22E with the FCF yield mapping to 20%/17%.
Balance sheet bolstered by significant free cash generation. Whitecap's free cash generation improves meaningfully at our new pricing outlook. We see D/CF of 0.9x/0.4x at year-end 2021E/22E (peers 1.6x/0.9x), with absolute debt levels falling by roughly $540 million/$420 million. Management remains focused on debt repayment to improve flexibility following its recent combination with NAL and TOG. We expect the team to continue to evaluate new deals going forward, though we do not incorporate this into our base estimates.
Outperform recommendation. We maintain our Outperform rating and have increased our target price to $7/share (previously $6.50/share) alongside our updated commodity price deck. Whitecap shares trade at 4.0x/3.3x 2021E/22E EV/DACF vs peers at 3.1x/2.3x. In our view a premium multiple is warranted by strong sustainability metrics, ample liquidity and a seasoned management team.