Whitecap Resources Inc T.WCP

TD Raise Target

[retiredcf]

From $16.50 to $17.00. GLTA

Whitecap Resources Inc.

(WCP-T) C$9.68

Non-Core Assets Dispositions Drives Increased Return of Capital

Event

Whitecap Announced the Sale of Non-Core Assets; Increases Base Dividend

Impact: SLIGHTLY POSITIVE

Whitecap Announced the Sale of Non-Core Assets For Total Proceeds of $419mm ($394mm in Cash). The company has entered into three separate agreements to sell certain non-core assets which are currently producing 11 mBOE/ d. Whitecap will receive $394mm in cash consideration and additional assets in Butte, SK with a deemed value of $25mm, further consolidating the company's position in the area.

These transactions are all expected to close in January 2023. These assets were expected to contribute 10 mBOE/d to 2023 volumes on no capital spending. Updated 2023 guidance has been revised to 160-162 mBOE/d (from 170-172 mBOE/d) on unchanged capex of $900-950mm.

 Our View: The transaction appears to have been completed at 3.0x operating cash flow or 4.1x funds flow. Given that Whitecap was trading at ~3.8x EV/DACF prior to the transaction, this implies a slight premium/accretion which is a strong outcome given the non-core nature of the assets.

Monthly Dividend Increased by 32% to $0.0483/sh ($0.58 annually) from $0.0367/sh ($0.44 annually) effective in January 2023. Now that the company's first net debt target of <$1.8bn will be achieved on the back of the above transactions, the previously targeted divided increase of ~30% has been triggered. Whitecap expects to reach its next net debt threshold of <$1.3bn by mid-2023 (we forecast sometime in Q2/23), at which time, the base dividend is again expected to increase by ~25% to $0.73/sh annually. In addition, at that time, the company will begin returning 75% of FCF to shareholders inclusive of this base dividend increase.

 Our View: We forecast 7% of the current market capitalization will be returned to shareholders in 2023E. Given the step-up in the shareholder return strategy, we forecast this to grow to 9% in 2024E despite our declining commodity price forecast.

TD Investment Conclusion

The non-core sale was completed at solid metrics, in our view. Now that financial leverage targets are moving closer, the company is on the cusp of returning substantial cash to shareholders through the base dividend and share buybacks.

[Citizen13]

Wonderful. I will run naked down my street if $ 17 happens. My poor neighbours will be scarred for life. However one important key detail is missing . What in 2023 is going to happen to make future investors want to pay 75% more per share than they can today ?  A 26% dividend increase ?  Hope and prayer is not a viable investment strategy.

[pierrelebel]

Citizen13 wrote "...Wonderful. I will run naked down my street if $ 17 happens..." While my target for 2023 remains $15.00, I see the possibility of hitting $17.00 late next year (most likely December).  Depending where you live in the country, December may be a bit too cold for running naked in the street!

[Citizen13]

I live in cold Kanada but not to worry as there will be some scotch involved too Pierre . ;-)

[pierrelebel]

Citizen13 - If you happen to walk naked on my street in Napanee, Ontario, I will have a glass of decent scotch ready for you (JW Blue - 30 year old - gift from my children when I turned 75 years ago).

[biker222]

Hey Pierre, I will run naked down your street to sit and share that bottle of blue label. I used to be able to buy it in china duty free for 100 bucks a bottle...and unfortunately developed a definite taste for the stuff! But its 3x S now! biker