RE:If I was running SuncorObscure1 wrote: SU is in the incredibly fortunate position of being a cash elephant (cow is too small) these days and probably for the forseeable future. The trick is to decide how to use the cash.
Currently, with the share price at $29 at the FCF at about $10 per share, the company can earn a risk-free 35% return on its investment by buying back its shares under its existing NCIB. I don't know any business that wouldn't do that.
If I was running SU, I would be reaching out to its institutional shareholders to feel them out about their intentions going forward. Once I had figured out who's who in the zoo, I would propose to take take out the futures sellers to the tune of 300mm shares at $33 per share.
The cost of 300mm shares at $33 per share would be $10 billion which would provide SU with a 30% return on expected FCF for 2022. SU could pay off the $10 billion by the end of 2022 from the FCF.
The TSX would would probably have some hoops for SU to jump through but that is what lawyers are for. I expect a workaround could be arranged via a Tender Offer for 20% of the outstanding shares of the company.
Talk about a win-win-win.
SU: would be able to earn a 30% return on FCF and pay off the purchase in a year from pending FCF. The reduction of 300mm shares would boost earnings and permanently eliminate the cash drain of future dividends.
Institutions: that have ESG constraints could quickly and efficiently exit their SU holdings at a premium
Retail shareholders: the share price would jump up 10% and the prospects for future share price growth would improve as a 300mm share overhang would be removed
Not sure of the praticality and wisdom of this approach.
To buy the 20% of its existing stock they would have to produce a tender offer approved by the regulator which would be available to all shareholders not just the institutions which for various reasons want to sell their shares. So for example, you and I could tender our thousands of shares at the tender price for a handsome profit along with many other regular shareholders.
The institutionsin question would not likely be able to get rid of all their shares and the selling pressure would still continue after the tender closed.
After it is all said and done, the primary issue for SU would remain - concern that its vast reserves of oil would become orphaned in a low carbon centric world and in most likelihood selling pressure would continue.
In addition, there would be questions as to why SU didn't use the 10 billion to buy one or more of the leading alternative energy companies and diversify itself that way.
If I was management I would not be concerned in the least about the current stock price. I would be doing a full court press to scour the world to find reasonably priced companies with great potential in the alternative energy field and partner with them or buy them out. To do this I would set up a subsidiary which would act as a VC wing and another subsidiary focused on larger small caps and small mid sized companies and get into the finance business to promote their growth and get a piece of the action. In fact I would go so far as to spin off these subsidiaries to existing SU shareholders while retaining a controlling interest to the parent ie SU. I would staff these subsidiaries with real entrepeneurs who have a talent for this kind activity and have world-wide connections and networks.
I bet the market pros would be very interested in being a part of these companies and bid up their SP and in directly increasing the value of SU itself.