Q: CPG:CA has been on trend with other Canadian producers, that is to say they are returning a significant portion of their FCF to shareholders. This also implied limited expansion and debt reduction.
How does their latest acquisition fit with this philosophy, and is the company still focused on its core objectives?
How does their latest acquisition fit with this philosophy, and is the company still focused on its core objectives?
5i Research Answer:
It is tough to say; CPG has a long history of making acquisitions and funding them with debt and new equity. This is the company's second large deal this year. It has been buying back stock, but debt has started to creep up, and will creep more with the new acquisition. None of this will matter if commodity prices go the right way. But in a sector reversal, investors will likely criticize management for returning to the old ways. Right now (and this could change) investors are favouring companies just giving back capital to shareholders.