Q: With energy stocks such as WCP and CNQ benefiting from high oil prices what is there best strategy for deploying free cashflow? M & A opportunities are expensive given increase in share prices; buybacks are also questionable as their share values have risen. Debt levels are relatively low. Are dividend increases or special dividends the best use of deploying Capital ?
5i Research Answer:
While the prices have risen, one could argue that the shares still look relatively cheap, so we would not be too concerned with more buybacks at these levels. We don't think most companies will materially change their capital allocation priorities and are likely 'looking through' the current turmoil opposed to making long-term strategic shifts on what is likely/hopefully a shorter term issue for the time being.