Analysts update eparate report, Mr. MacCulloch said Whitecap Resources Inc. (WCP-T) is “capping off another solid year of M&A activity.”
Shares of the Calgary-based company jumped over 6 per cent on Monday after announcing a trio of acquisitions, costing a total of $342.5-million, meant to consolidate its core assets within its Central Alberta, Eastern Saskatchewan and Western Saskatchewan business units. It also revealed a plan under its normal course issuer bid to repurchase 19.2 million shares at a price of $6.95 each for total value of $133.7-million.
“From our perspective, the favourable market reaction to the update was warranted given the highly accretive nature of the transactions, which also strengthened the asset portfolio by consolidating core operating areas while providing additional drilling inventory,” the analyst said. “We believe WCP remains well-positioned to continue accelerating returns to shareholders.”
“[Monday’s] announcement of a trio of additional tuck-in acquisitions likely represents the final chapter of another busy year of M&A for the company, which began with the NAL Resources, TORC Oil & Gas and Kicking Horse Oil & Gas transactions. Those deals now feel like half a lifetime ago within the context of a rising commodity price environment, notwithstanding recent headwinds. Either way, the combination of asset tuck-ins and the share buyback helped drive a 6-per-cent increase in our 2022 CFPS estimate, which supported our target price increase. While the large capital outlays resulted in a modest pickup in debt levels, we continue to believe that the balance sheet is well-supported, with D/CF remaining on track to exit 2022 at 0.5 times based on current strip prices.”
With increases to his cash flow estimates, Mr. MacCulloch raised his target for Whitecap shares to $11, above the $10.80 average, from $10. He kept a “buy” rating.
“We expect the company to remain opportunistic both with respect to future M&A and repurchasing the 7.1 million shares remaining on its current NCIB program before expiry in May 2022,” he said. “We also anticipate further progress from the New Energy business development team, which recently signed another MOU with a large CO2 emitter in the Regina/Belle Plaine area. At this point, WCP already has a clear head start in developing a CCS hub in southern Saskatchewan, which could eventually help fill underutilized capacity at the Weyburn CO2 unit. While it’s still early days, we believe this could be a highly attractive business opportunity, particularly if the federal government comes to the table with policy carrots to incentivize CCS for EOR projects, similar to the US 45Q tax credits.”
Others making target adjustments include:
* ATB Capital Markets’ Patrick O’Rourke to $11.50 from $11.25 with an “outperform” rating.
“Overall, we view the event as positive with WCP continuing to flex its muscle as a strong acquirer and consolidator in the Western Canadian Sedimentary Basin in a strategic and accretive way,” he said.
* RBC’s Luke Davis to $11 from $10 with an “outperform” rating.
* Stifel’s Cody Kwong to $11.25 from $10.75 with a “buy” recommendation.