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  5. FRU: Hi Team, Is this a value trap or does it seem like the CEO is doing a great job with capital allocation and the valuation looks attractive for the long term? [Freehold Royalties Ltd.]
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Q: Hi Team,

Is this a value trap or does it seem like the CEO is doing a great job with capital allocation and the valuation looks attractive for the long term?

Thanks
Asked by Keith on July 01, 2025
5i Research Answer:

The stock has not done much (flat YTD), but then again, neither has the sector (1.6%). As a royalty play, it is more expensive than producers, at 15X earnings. The dividend of 8.44% is attractive, and payout ratio is 71%. The last dividend increase was in August 2022. Insiders own 1% and have been net buyers this year. The balance sheet is fine. The main issue is there has not been a lot of growth. EPS this year and next is expected to be well below levels of 2021. Cash flow is better, but still hasn't been growing much. The share count has also been increasing, unlike most O&G companies. It has recently announced a share buyback plan, but this is optional and we will see how active FRU is in buybacks over the next year. It has also had some senior management changes. All in, we would consider it 'OK'. It needs a catalyst or an improved sector backdrop we think to really perform. For now, it is trading for its income and we would give it a HOLD rating, primarily due to its high yield.