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Whitecap bulks up

Also: TransAlta shares look oversold. Should you nibble?

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Mar 17, 2014

by Max Fawcett

Whitecap Resources (TSE:WCP) kicked off the week by buying just shy of a billion dollars’ worth of assets from Imperial Oil (TSE:IMO) and announcing that it will finance the acquisition with a $500 million bought deal. After selling some of the assets (gas-weighted ones) it bought from Imperial to Keyera, Whitecap is left with $693 million worth of conventional oil assets located primarily in the Cardium, with additional property in the Boundary Lake area of northeastern B.C. According to Altacorp, the deal looks good for Whitecap shareholders. “Transaction metrics appear fairly expensive on current production ($106,600/boe/d) but inexpensive on 2015e cash flow at 4.1x (in part reflecting forecast growth). WCP paid $19.15/boe on proved reserves and $14.15/boe on proven plus probable reserves.”

As a result, Whitecap increased its guidance for 2014 to 31,600 barrels per day (up from 27,900), with its oil/NGL weighting moving up three per cent to 73 per cent as a result of the deal. Its projected average netback moved up $42.70/boe from $40 and its cash flow increased to $493 million from $407 million, while its debt-to-cash flow ratio is expected to tick up to 1.2 times (from 1.0) by the end of the year. It also increased its dividend by 10 per cent. Altacorp’s Don Rawson said that “Given the forecast accretion and free cash flow associated with the transactions, we expect the market to react favorably to the deal,” and it has, with WCP shares up almost four per cent at mid-morning.

Meanwhile, the Globe and Mail’s Scott Barlow thinks TransAlta shares might be oversold at the moment – at least, that’s what its RSI (relative strength index) is signalling. That could create an interesting opportunity for nimble traders. “TransAlta is definitely a case where an investor would need a firm grasp on the fundamentals – homework is required before buying the stock,” Barlow writes. “But, provided the dividend isn’t cut further, the 5.7 per cent indicated yield provides some downside protection for a prospective investor willing to wait out the current levels of volatility.” Another oversold name, according to the RSI: Lightstream Resources (TSE:LTS). But, as Barlow warns, “the usual caveats apply – technical measures like RSI change fast, and while historically they’ve been helpful at finding entry and exit points, they shouldn’t form the sole basis for an investment decision.”

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