For most companies, a share buyback isn’t big news. For Suncor Energy Inc., it certainly is.
Last September, the energy giant launched its first-ever share repurchase program, vowing to buy back $1.4-billion worth of its stock, or 3 per cent of its public float. That regime was renewed this week, after the company announced a new repurchase campaign, this time aiming to spend $1-billion.
Suncor certainly has the cash to afford this plan. At the end of June it had $5.2-billion just sitting on its balance sheet. (Though it also had over $10-billion in long-term debt, and its 2012 spending plans total $7.5-billion.)
But this is clearly a targeted campaign. Not only should it help to strengthen Suncor’s share price, simply because fewer shares will be on the market, it also draws the public’s attention to Suncor’s solid financial standing – which many are overlooking because they worry about rising oil sands development costs. Couple the renewed buybacks with the company’s 18 per cent dividend increase over the past year, and hopefully investors will get the message.
Analyst Andrew Potter at CIBC World Markets notes that Suncor’s net debt to 2012 estimated cash flows is just 0.6 times, but its share price to net asset value is just 84 per cent.
Mr. Potter expects “the same general story over the next 12 months with continued share buybacks and another dividend increase in the 2 per cent range. Suncor continues to like the balance of both tools to return cash to shareholders.”