Whitecap Resources Inc. (TSX: WCP) is engaged in the business of acquiring, developing, and holding interests in petroleum and natural gas properties and assets. The company acquires assets with discovered petroleum initially in place and low current recovery factors. Light oil is the primary byproduct of Whitecap's Canadian assets. 

Key Highlights:

• Growth in production: In Q1FY22, the company registered a higher production of 132,691 boe/day, as compared to 95,828/day in pcp. The increase in production was primarily due to the acquisitions completed in FY21 and FY22 as well as the Company's ongoing successful drilling activities, partially offset by natural declines.

• Strong Cost Management: The company reported improved EBITDA margin and operating margin of 68.2% and 120%, respectively, in Q1FY22, as compared to the industry median of 47.1% and 33.7%, respectively. This indicates that the company has better cost management and higher operational efficiency. Moreover, the company’s net margin was recorded at 75.3% in Q1FY22, higher than the industry median of 7.7%. Notably, the company reported higher operating netback of USD 540.5 million in Q1FY22, as compared to USD 225.2 million in pcp. Operating netback is calculated by subtracting all costs associated with getting the oil to market. Hence, a higher operating netback is commendable form the operational point.

• Healthy Balance-sheet: In Q1FY22, the company reported its debt to equity of 0.25x, as compared to the industry median of 0.57x. This indicates that the company has a prudent capital management and better financial flexibility when compared to the industry median. Moreover, long-term debt to total capital stood lower at 19.7% in Q1FY22, as compared to the industry median of 24.8%, indicating lower balance sheet risks.

Risks associated with the investment:

 The company’s operation is highly dependent on crude oil prices and the demand from the industrial and manufacturing activities. A fall in the demand for crude oil and a decline in commodity prices would dampen the overall realization of the company.

  Financial Highlights: Q1 FY22

 Q1FY22 Income Statement Highlights (Source: Company Reports)

• WCP announced its quarterly results, wherein the company posted its total revenue and other income of CAD 693.9 million, surged from CAD 328.2 million in pcp. The increase was attributed to higher realized prices along with an increase sales volume.
• The company reported a higher input cost and posted higher operating and increase in transported costs and coupled with higher marketing expense. The quarter was marked by an impairment reversal of CAD 629.7 million which uplifted the income before income taxes to CAD 867.7 million v/s CAD 30.2 million in pcp.
• The company reported a net income of CAD 652.3 million v/s CAD 19.6 million in pcp. This is due to higher income before income taxes, partially offset by higher income taxes.
  

 Valuation Methodology (Illustrative): P/CF based valuation

   Analysis by Kalkine Group

Stock Recommendation:

The company reported higher dividends of CAD 47.1 million in Q1FY22, as compared to CAD 24.1 million in pcp. This is impressive as most of the companies are lowering their dividend distributions in order to retain liquidity. We have valued the stock using the Price to CF based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Parex Resources Inc, Crescent Point Energy Corp Inc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of WCP at the last closing price of CAD 12.54 on June 08, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on June 08, 2021). Analysis by Kalkine Group

Note: The reference data in this report has been partly sourced from REFINITIV 

Technical Analysis Summary

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