Husky Energy Inc. cumulative redeemable preferred T.HSE.PR.B

TD on HSE Oct 1. ActionListBuy $31 tgt. 2inexpensive2ignore

[VerusSemperSors]

We added HSE to the Action List in December 2014. It remains well positioned to ride out further weakness in oil prices given a pristine balance sheet, low sustaining capital requirements, and a very low risk of a dividend cut, in our view. Even if oil prices were to track lower, we believe the DRIP would be re-introduced before an outright cut would be considered (it has a history in this regard). In addition, the mega-project development risk has largely been removed from the story with Liwan producing and first oil achieved at Sunrise in March. Lastly, we highlight that it has the lowest exposure to Alberta within our large-cap coverage (only 35% of its production is on Crown land). This is a clear positive in our mind, given continued uncertainty on pending changes to the current carbon and royalty frameworks. While broadly considered one of the more defensive energy names, we note that HSE shares have only outperformed the iShares S&P/TSX Capped Energy Index ETF (XEG-T) by 1% on a year-to-date basis. With the stock now trading at only 5.9x 2016E EV/DACF and a P/NAV of 61%, it is simply too inexpensive to ignore, in our view.