Whitecap or Crescent Point?

Whitecap is my preference

Whitecap Resources (WCP.TO) reported its Q1 2024 results on April 4, 2024 giving investors a glimpse into how commodity prices fared in the period. Rival Crescent Point (CPG.TO) doesn’t report Q1 2024 until May 10, 2024. But the Whitecap results are useful in estimating how Crescent Point progressed in the early part of this year.

I value Whitecap (using a modified Black Scholes model which values the company as a call option on future commodity prices) at CDN$16.38 a share. Currently trading at $10.77 a share, I view Whitecap shares as undervalued.

I valued Crescent Point based on its year end 2023 disclosure of production and costs etc. but using Whitecap’s realized commodity prices as a proxy for those Crescent Point realized in the quarter. Using the same valuation methodology, I valued Crescent Point shares at CDN$16.63 a share versus the curren trading price of $12.38 a share.

Crescent Point is the larger company but also carries the most debt and has some 20 million more shares outstanding, so I am not surprised the per share values are quite close.

I prefer Whitecap to Crescent Point for two reasons. First it is trading at a deeper discount to intrinsic value (assuming my valuations are reasonably correct) and secondly, Whitecap dividends provide a yield of 6.2% while Crescent Point’s yield is less at 3.7%. Crescent Point relies on share repurchases to a greater degree than Whitecap as a means of “returning capital to shareholders” which, in my opinion, is absurd since most investors purchased their shares in the secondary market and never gave a dime to the respective company, and I object to management giving money that in effect belongs to me through my shareholding to other investors who have decided to sell their holdings.

The buybacks give a risk free return to those selling and leave remaining shareholders at risk to the future performance of the company albeit with fewer shares outstanding. Dividends treat all shareholders equally while buybacks conflate a risk free distribution with a risky investment for those not selling into the buyback and, in my opinion, comprise a scheme that securities regulators should never have permitted since all shareholders do not receive equal treatment, the hallmarket of fairness in securities regulation.