TD White HotWhitecap Resources Inc. (WCP-T) C$13.36
Q4/14 CFPS in Line; Financial Flexibility Continues
Event
Whitecap announced financial and operating results for Q4/14.
Impact: NEUTRAL; CFPS of $0.54 in Q4 was slightly ahead of the TD and consensus estimate of $0.53 on previously announced production (see our note on 2014 reserves). The beat relative to our estimate was a result of lowerthan-expected operating expenses.
Exhibit 1. Q4/14 Results Summary
Q4/14A TD Estimate % ∆ Consensus % ∆ Beat/Miss
Production (mBOE/d) 37.7 37.6 0.2% 37.6 0.2% In Line
CFPS (Diluted) $0.54 $0.53 1.8% $0.53 2.6% In Line
\ What Should Investors Know?
Operating costs in Q4/14 were better than expected.
In 2014, Whitecap drilled 169 (142.5 net) wells with a 100% success rate.
TD Investment Conclusion
We reiterate our ACTION LIST BUY rating and $17.00 target price given that we believe that the stock deserves to be valued in line with the premium multiple peer group (see our most recent note from early-March, including our premium scorecard). There are very few oil-based companies which have the cost structure to operate a sound energy business under today’s commodity prices. We rank Whitecap as one of these few given the expectation of production growth per share, stable dividends within cash flow, financial flexibility, and the valuation to potentially be opportunistic on value-creating strategies through the low cycle. The recently increased credit facility (+20% to $1.2 billion) provides increased financial flexibility through this low pricing environment and positions Whitecap to take advantage of strategic opportunities given our "Buy the Buyer" thesis on M&A (see our 2015 outlook report). We believe that this provides option value within the Whitecap thesis today even at flat oil prices given that we expect the asset base to look more attractive over the next two years on highly accretive, strategic consolidation moves.