RRX : TSX : C$3.85
BUY
Target: C$5.50
Initiating coverage of RRX and WCP
Two Saskatchewan Viking oil focused operators with proven management teams
With this publication, we are initiating coverage of Raging River Exploration (RRX: TSX) with a BUY rating and C$5.50 target and Whitecap Resources (WCP: TSX) with a BUY rating and C$13.00 target price. Both companies are led by experienced management teams with a history of successfully creating shareholder value.
Raging River Exploration RRX BUY $3.85 $5.50
Whitecap Resources WCP BUY $ 1 0.20 $13.00
We believe these stocks offer superior share price appreciation potential owing to:
1. Strategic positions in one of the largest light oil plays in the Basin. Both Raging River and Whitecap offer investors significant exposure to the Saskatchewan Viking light oil play in the greater Dodsland area that contains an estimated six billion barrels of original oil in place. Technology and improved operational efficiencies have increased already robust well economics across the play, which continues to expand in the halo areas with additional step out drilling efforts.
2. Organic sustainability that is rewarded by the market. RRX has reached critical mass and has grown its asset base into a free cash flow generating model. WCP maintains one of the lowest total payout ratios in the high yield E&P group at a 96%/94% forecast in 2013/2014. WCP in our view is well positioned to raise its dividend in 2014 by up to 20%, while maintaining a <100% payout ratio.
3. Utilizing a cost of capital advantage in a buyer’s market drives stock performance. Both RRX and WCP maintain strong balance sheets, a cost of capital advantage, and proven ability to extract additional value from acquisitions which position each well within the current market environment.
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