Freehold Royalties Ltd T.FRU

Canaccord reiterates guidance and $18 target

[Westcoastenergy]

Ugly day on the energy markets today but the dividend softens the blow.  In my view, given the metrics, FRU is now a blue light special.  Bought more today.  

Expanding Midland footprint in $259M royalty acquisition Friday morning, FRU closed its $259M acquisition of Midland Basin royalty assets and concurrent $172.5M equity financing. The company is acquiring certain mineral title and royalty assets in the core of the Midland Basin from a private seller for $259M. The assets bring expected 2025E royalty production of 1,500-1,600 boe/d (~81% liquids), with management forecasting 2025E NOI of ~$37M at US$70/bbl WTI, implying acquisition metrics of ~$167,000/boe/d and ~7.0x NOI. The acquired assets span across ~244,000 gross acres in the Midland (including ~74,000 gross acres that overlap with FRU's preexisting acreage) and increase the company's acreage in the basin by ~35%. Importantly, the acquired assets are largely operated by ExxonMobil (XOM-NYSE | Not Rated) and Diamondback Energy (FANG-NYSE | Not Rated), with both of these operators having bolstered their positions in the basin through ~US$90B of transactions this year. In our view, this provides greater confidence in the outlook for activity on FRU's Midland assets. We reiterate our BUY rating and C$18.00 target on FRU, which is DCF-based and maps to a 2025E EV/DACF multiple of 10.7x. FRU currently trades at 8.0x 2025E EV/DACF, compared to the royalty group average of 12.6x. Highlights from the release: Deal summary. FRU is acquiring ~244,000 gross acres in the core of the Midland Basin (including ~74,000 gross drilling acres that overlap with FRU's preexisting acreage) and ~1,500-1,600 boe/d (~81% liquids) of expected 2025E royalty production for $259M (Figure 1). Of note, the lands are ~25% undeveloped and bring ~0.96 net DUCs and permits, increasing the company's US DUC inventory by more than 20% to ~4.4 net activity wells. At US$70.00/bbl WTI pricing, FRU anticipates this generating ~$37M of net royalty revenue. The acquisition almost doubles FRU's share of Midland drilling activity to one in every three rigs active in the basin (previously one in every six rigs). Additionally, ~95% of the current production and ~75% of the prospective development inventory on the acquired assets is operated by ExxonMobil and Diamondback Energy. Note the deal was initially announced at $216M to acquire 1,250-1,350 boe/d of royalty volumes with an option to acquire an additional $65M interest in the assets under the same terms and conditions. On December 10, FRU announced it will acquire ~ $22M of additional interest in the assets for a total of $238M. On closing, the company announced it will acquire an incremental ~$21M interest in the assets for a total consideration of $259M. Pro forma, FRU's royalty production will be split ~58% in Canada and ~42% in the US. Financing and deal metrics. FRU financed the $259M acquisition through a combination of its existing credit facilities and a $172.5M bought deal equity raise, issuing 13.3M shares at $13.00/share. With the acquisition, FRU also increased its credit facilities from $400M to $450M. Metrics on the acquisition include ~7.0x NOI and ~ $167,000/boe/d, accretive to the 8.6x 2025E EV/DACF multiple FRU was trading at prior to the announcement and broadly in line with the company's previous Midland-related royalty acquisitions (Figure 2). Outlook and estimate changes. Our updated estimates incorporating the acquired assets are summarized in Figure 3. With the acquired assets, we now forecast FRU generating 16,217 boe/d of royalty production next year with $255M of cash flow, resulting in year-end 2025E net debt of $186M (0.7x D/CF, TTM). On our updated estimates, we forecast FRU's payout ratio in 2025E to be 70%. FRU is expected to provide its 2025 guidance alongside its Q4/24 results on March 12, 2025. Valuation and recommendation. We reiterate our BUY rating and C$18.00 target on FRU, which maps to a 2025E EV/DACF multiple of 10.7x. FRU currently trades at 8.0x 2025E EV/DACF compared to the royalty peer group average of 12.6x.

[pkrash]

Picked up another 1K today also. Boxing Day sale is early!!

[EstevanOutsider]

fru divy is not safe here over the medium term. i predict an 84% payout ratio for Q4. but the biggest risk is that shale E&P slow down drilling and production eventually falls. i think the market multiple discount is reflecting some of those risks. freehold needs higher oil prices next year or the risks go up more. also unlike prairiesky, fru's debt levels are increasing alone with the

[Marty47]

What's the payout now .... I see 122% maybe is not been adjusted with acquisition 

[Ocalaman]

Except from RBC report after the acquisition. • We expect continued dividend growth at our current outlook. Freehold remains in a strong position to continue to deliver near-term dividend growth following close of the deal. Based on our updated estimates, this maps to a 2025 payout ratio of 70% at our current outlook (67% at strip), compared to the company's 60% target.

[EstevanOutsider]

lol dividend growth at nearly 9% yield? again the risk for freehold more then the commodity price is that drilling activity falls on their US lands particularly, something likely if commodity prices dont improve. in that case, the short cycle nature of shale will see a drop in production.  market telling u that and recognizes the risks over prairiesky and topaz, hence the massive multiple

[pkrash]

I approve of this message. Bought another 1K shares today.