Ccord catches the curlWhitecap Resources Inc. (WCP : TSX : C$11.72) - Buy - Target:C$14.00
Plundering the Viking; maintain BUY rating and C$14.00 target
Investment recommendation Whitecap remains acutely focused on executing its acquire-and-exploit strategy in an oversupplied market. It announced another strategic acquisition (a private company which we suspect could be Home Quarter) in the Saskatchewan Viking light oil play, contiguous to its existing core area at Whiteside. It continues to very selectively add assets that strengthen its sustainable yield-plus-growth model, and we believe the latest acquisition provides further upside potential in the Viking where it has proven its operational efficacy. Given its improved outlook the company increased its dividend by 8% to $0.68/share annualized, providing further proof to the market that its success over the past year is expected to continue. We maintain our BUY rating and C$14.00 target price based on an unchanged 1.1 multiple to NAV and a 7.7 2014 EV/DACF multiple. Investment highlights Fair metrics. Whitecap is acquiring a private company for $327 million in an all-stock deal
which improves its balance sheet at an implied price of $12/share (2.4% premium to last close). Metrics were $81,850/boepd and $22/boe (2P), generally in line with precedent transactions. Acquisition ~2% accretive to CFPS, neutral to NAVPS. On our forecasts the acquisition is near-term accretive to CF. The company has not attributed any potential undeveloped well locations to the Totnes or Forgan areas which we believe represent material upside potential over time as they have both proven to be oil charged. However, Totnes in particular has not produced at economic rates to date, and we feel Whitecap's expertise could be what is needed to further this area's development. Valuation Whitecap currently trades at a 0.9x multiple to CNAV estimate, 6.6x EV/DACF, and $98,200/BOEPD based on our 2014 estimates vs. its peer group averages of 0.8x CNAV, 7.4x EV/DACF, and $71,500/BOEPD.