Perspectives on Investing in SUAll investors, whether they realize it or not have investment objectives which are different from each other. In the same way companies have different ways of looking at their business and what is the best way to grow the company.
With that as background, there has been much talk about the issue of SU raising its dividend. As some here have pointed out and I agree with their view, if you are looking for yield right now and companies which have a track record of increasing their diviidends then you should sell your SU and buy something else like a pipeline or a utility.
In the case of SU itself, I believe the corporate strategy is more complex and from reading the posts here and with all due respect, I don't think a lot of people here fully understand what management's strategy is.
1.....the shares are under what is called in the finance industry a distribution which means that the onwership of the company is changing in a dramatic way. In the case of SU this is mainly driven by big investors moving for one reason or another away from oil based investments. The result of this is that the SP is undervalued since those selling have shorter timeframes than those buying and so the buyers can out wait out the sellers. SU managment sees this and also sees an opportunity to enhance shareholder value in the long run by buying back its own shares for now. Raising the dividend in this scenario is obviously shooting themselves in the foot.
2...mgt has also put emphasis on carbon capture and GHG iniatives. Why? Because the company is associated with "dirty oil" and it has begun a process to get regulatory approval to expand the mineral rights for the base plant and needs to be a more environmentally sound player to have any hope of getting the necessary regulatory approvals.
3....points 1 and 2 combined with the strategy to reduce productions costs and reduce debt will take up most of the FCF for the next year. After that they will have lots of FCF to do something else.
4....from the perspective of The Street, this strategy is all well and good but one that is being directed towards what is thought to be dying industry (ie oil production). For this reason SU is not exciting and what is perceived to be a lack of imagination by managment or non acceptance that oil demand will decline over time has lead to a lack of interest in investing in SU and this drives down the SP
5....the answer is clearly that SU needs to trasnform itself into a renewable energy company. Right now there is a feeling, with the current corporate strategy that they have no plans or capability to do this. Whether this is really true or not, I have no idea but the evidence so far would suggest that this perspective is valid.
So what does SU need to do?
A....finish out their current strategy over the next year because it makes sense
B....during this time build the capability to start the process to move to a renewable energy company or at a minimum, partner with people/companies that have expertise in renewables and then use their huge FCF to gain a big piece of this business over time through partnerships.
Without B, the SP will SU wil languish and it will simply be a bad investment. As I mentioned in an earlier post, I am giving them a year to show me that they are serious transforming to a renewables energy company. If they do I will buy more and potentially overweight my investment taking advantage of a cheap SP. In the alternative, if they don't, I will sell and move on.
I sincerely hope that they follow B since with their huge cashflow they could perhaps become one of the largest renewable energy companies in the world over the next 20 years or so. The potential is there, it is just a question of whether management will seize this opportunity.