From Banque NationaleMy Observation : I am posting this knowing that September will offer a bumpy ride, to say the least...
Whitecap Resources Inc.
Accelerated Acquisition Closure Necessitates Guidance Bump
WCP (TSX) STOCK RATING TARGET EST. TOTAL RETURN C$9.57 Outperform (Unchanged) C$17.50 (Unchanged) 87.5%
Company Update Guidance Changes WCP announced the closure of its previously announced XTO acquisition, one month sooner than initially anticipated. As a result, the Company has increased its 2022 production guidance by ~3% at the midpoint to 142–144 mboe/d (from 138-140 mboe/d) to reflect the added month of XTO volumes (~2.7 mboe/d) as well as solid asset performance. Meanwhile, taking a similar approach to 2H/21, 2022 capex guidance has been bumped by $60 million to $670-690 million (from $620 million) to retain current D&C crews for the upcoming winter drilling program.
Preliminary 2023 production and capex guidance remain unchanged at 168-174 mboe/d and $900-1,100 million, respectively. The formal 2023 budget will be announced on September 28th.
Refreshing Our Estimates We have updated our estimates to capture the guidance update and are now forecasting 2H/22 FCF of ~$875 million and $989 million in 2023, and see the Company hitting its near-term net debt targets of $1.8 billion and $1.3 billion in Q4/22 and early 2023, respectively, each triggering a ~30% dividend increase (from the current $0.44 annualized dividend; 4.6% yield).
Upon reaching these debt targets, the Company will target returning 75% of FCF to shareholders through dividends and share buybacks. By adding over 20 years of tier 1 inventory through the XTO acquisition, WCP is well-positioned to sustainably grow its production base and deliver on long-term shareholder value creation through a focused return of capital model.
Valuation & Target Price On our revised estimates, Whitecap trades at a valuation of 2.8x 2023e EV/ DACF, in line with its peers at 2.5x but below its three-year historical average of 4.2x. We reiterate our Outperform rating and our target price of $17.50, which remains based on a 2023e EV/DACF multiple of 5.0x.