EQUITY RESEARCH
June 14, 2023 Flash Research
CENOVUS ENERGY INC.
Repurchase Of 84% Of Outstanding Warrants
Cenovus has reached an agreement to repurchase 84% of the issued and
outstanding warrants for a total consideration of $711 million. This represents
a price of $22.18 per share less the $6.54 exercise price of the warrant.
Recall, these warrants were issued on the back of the Cenovus-Husky
merger which was announced in 2020 and had an expiry in 2026. This
transaction would remove ~45.5 million warrants or ~2.3% of the fully diluted
outstanding share count.
Financial And Operating Takeaways
• The Transaction: The 45.5 million warrants cancelled as part of the
transaction, if exercised, represent ~2.4% of Cenovus’s total common
shares outstanding. The warrants will be cancelled at close, which is
expected to occur later today. The completion of the transaction will allow
Cenovus to avoid a potential future dividend liability of ~$25 million per
year and reduce share dilution.
• Payment Terms: The agreement allows Cenovus to pay the aggregate
warrant purchase price of $711 million at Management’s discretion until
January 5, 2024, suggesting no immediate cash outflow. Management
will determine the pace of the payment with consideration of achieving
the net debt target of $4 billion. On strip, we expect the company can still
achieve its $4 billion net debt target in H1/24.
• Valuation: Cenovus trades at a P/RNAV ratio of 90%, a 2023E
EV/DACF of 4.9x and a 2023E FCF yield of 13% vs. the large-cap group
at 95%, 5.0x and 13%, respectively