Husky Energy Inc. is doing all it can to signal to the market that it is doubling down to create growth. But if it wants to get serious, it needs to pick up its acquisition pace.
"On the basis of its organic growth prospects alone, production will at best remain flat for the next two years (and possibly longer, in our view)," noted TD Securities analyst Menno Hulshof.
That being said, TD did praise Husky for already closing $1.2-billion worth of acquisitions since providing a strategic update in the fall on 2010. It's just that TD wants to see more.
Husky has demonstrated that it knows it needs to do something to boost its share price. In November the company announced a $4.9-billion capital expenditure program, which included its $860-million purchase of oil and natural gas properties from ExxonMobil Canada Ltd.
To fund this program, Husky has already raised $1.3-billion in preferred shares and common equity in the last six months. But the worry is that the company will put its funds toward developing long-term properties instead of buying some more growth in the near-term.
Plus, as TD points out, it can take a while for investors to appreciate a long-term strategy. The dealer cited the example of Talisman Energy, which unveiled a revised strategy in May, 2008. It took the market 2.5 years to pay for any potential upside.
On another note, Husky's dividend yield is still lucrative at 4.1 per cent, but some question whether or not that's sustainable with weak organic growth. For the next few years the company should be okay, TD noted, because 82 per cent of shareholders participate in the company's dividend reinvestment plan, which reduces cash outlays by $878-million a year. But that plan expires at the end of 2012. (It should be noted that two controlling shareholders own 70.5 per cent of Husky, which skews the participation rate).
Tim Kiladze