RBC on Q1 2017 Results. Price Target $13from RBC
"Whitecap Resources Inc.
Q1/18 - Neat and tidy
Our view: Whitecap Resources announced in-line Q1/18 results while
reinforcing its capital discipline mantra with a shareholder friendly 5%
dividend hike. We expect the stock to react favorably to the release
and maintain our Outperform rating given an attractive FCF profile, solid
execution, and healthy balance sheet.
Key points:
• Neat and tidy. Q1/18 volumes of 73.1 mboe/d topped our 71.8 mboe/
d estimate. CFPS of $0.40 was in-line with the Street consensus which
was a penny below our estimate. Liquids volumes were 2% ahead of
our target, however realized prices fell 2% below our estimate largely
negating the impact of higher Cdn light and AECO benchmarks. Other
variations to our model were minor. Q1 E&D capex of $182.4 million
(92.8 wells) tracked below our $190 million estimate and represents
42% of Whitecap's full year $440 million capital budget. This pace is
in-line with prior years as Q1 is typically Whitecap's most active in
the field. The company closed a 1,000 boe/d (95% oil) tuck-in in its
SW SK core area for $56.8 million in late Q1 but maintained its full
year volume guidance range (73.6 - 74.8 mboe/d) due to 800 boe/d
unplanned downtime in the Cardium and a late 2017 disposition.
• Attractive FCF profile. Including the 5% dividend hike Whitecap's
revised 2018 and 2019 all-in payout ratios map to 77% and 68%,
respectively, at our US$63/bbl and US$65/bbl WTI outlook. Whitecap
also repurchased 1.3 million shares for $11.5 million in Q1 and indicated
plans for a renewed NCIB as an option vs planned debt repayment. We
project 2018 FCF after capex and dividends of $180 million or about 3%
of Whitecap's current EV.
• Strong hedging and balance sheet position. Whitecap has 49% of
remaining 2018 crude oil volumes (net of royalties) hedged at an
average floor of C$68/bbl. For 2019, the company is 25% hedged on
crude at an average floor of C$73/bbl. Management indicated a shift
to a balanced hedging program between swaps and costless collars to
increase crude price leverage. Whitecap's balance sheet is healthy with
projected 2018 and 2019 D/CF ratios of 1.6x and 0.9x. Its move to a
covenant backed credit facility should serve to enhance future financial
flexibility, in our view.
• In line cash flow multiples despite strong track record. Whitecap trades
at 2018E and 2019E EV/DACF and P/NAV multiples (ex. hedging) of 5.9x,
4.7x and 1.0x vs. Cdn oil-weighted peers at 5.7x, 4.5x and 1.0x. For
context, our broader North American Intermediate peer group trades at
average cash flow multiples of 6.4x and 5.0x.
• Reiterating Outperform and $13.00 price target. Our one-year price
target reflects a 1.0x multiple of the $13.24/share sum of our $9.09/
adjusted base NAV plus $4.15/share from risked resource development.
Our target 1.0x multiple considers Whitecap’s strong track record
of execution, above-average recycle ratios, and diversified portfolio strategy."