Vermilion Energy Inc T.VET

What makes VET so compelling - a few things - 27% FCF

[MyHoneyPot]

In the last 12 month Vet has paid off 409 million in debt or about $2.63 a share. Really that should directly reflect in Shareholder appreciation. 

In the last 12 months they bought back 8,312 million shares, or approximately 5.35% if their float in basiclly a year. 

Vet is paying out 12 cents a quarter in dividends that is roughly .46 cents a year. One quarter they paid only 10 cents.  

Vet Production increased 1.7% since the start of Q4 2023

Lets assume VET is a 15 dollars stock today. 

Production Growth, Deb Repayment, Dividends, Sharebuybacks 

(1.7% * 15) + $2.63 + $.46 + (5.35% * 15) = $4.145 cash to shareholder in a year. 

That is really $4.145 / $15 dollar stock = 27.6% return since the beginning of Q4 2023

So this stock is to cheap and no stock gives a return like that to shareholders in one year, if fact the guys telling you they are returning 100% of FCF to shareholders are not giving this kind of return. This is because they are usually only generating FCF per share around 10% . (CVE, VRN, etc)

So here is an investment idea, give me your opinion, you could buy options into Jan 2027 two years out, if the company keeps buying back shares, don't include the dividend payments the stock should appreciate by about about $3.66 a share or in  the first year and $4.64 in year 2. 

If you bought a (Jan 2027 call option 14.00) paid $3.50

Now in Jan 2027 if the company performs like it has assume no rerating of the stock, adding $3.66 the first year in value,  and 4.64 year 2) the shares should be trading for $8.30 + $15 = $23.3 you would hope to get. (The stock would still be trading at 27% FCF)

$3.50 (Option Cost) + 5.80 Capital Gain     or a return of 165 percent after return of you capital. 

This is assuming the stock does not rerate and is still trading at a 27% FCF yield. 

If the stock rerated to at 16% free cashflow yield and assuming the grew FCF per share maintained its level at the level of 27%

the stock price at a compounding 27% FCF return in Jan 2027 = $23.30

However if the stock started trading at 16% FCF a better multiple it would be 27% / 16% * 23.30 = $39.31 a share. 

$3.50 (Option Cost) + 21.81 (Capital Gain)  or a return of 623% that is after the return of your $3.50 price you paid for the call option. 

This stock has the potential to be a multi bagger, with no significant exploration success, simply continue on the payway they are going. 

This example may be over simplified a bit, that is on purpose. 

However 27% FCF is very compelling and makes for very interesting times ahead. 

IMHO
MHP

[loopsbutterfly]

Yeah, thats why it is one of my top holding at the moment come along for the ride gracias    grinnnnn....