- Stock falls as much as 6.7 percent Friday, most since June
- Producer’s C$650 million equity deal seen as dilutive: Dundee
Crescent Point Energy Corp. fell to the lowest in almost five months on Friday after a C$650 million ($499 million) stock offering, on concerns the deal is dilutive for shareholders.
Shares of the Calgary-based oil producer declined as much as 6.7 percent to C$18.20, the biggest intraday drop since June 24 and the lowest since April 18. That’s a 5.7 percent discount to the C$19.30 price at which it offered its shares in the deal announced Thursday. The stock fell 5.9 percent to C$18.35 at 3:35 p.m. in Toronto. Crude futures dropped 3.5 percent to C$45.94 a barrel in New York, dragging down shares across the industry.
While the secondary offering was made by Crescent Point to expand spending by C$600 million over 2016 and 2017 and increase production, the issuance of new stock will mean a decline in per-share output and cash flow according to estimates from Brian Kristjansen, an analyst at Dundee Capital Markets Inc. in Calgary. Kristjansen lowered his stock recommendation for Crescent Point to the equivalent of a hold, from a buy, after the equity deal.
“It’s not compelling,” Kristjansen said Friday in a phone interview. Crescent Point now has the lowest yield and lowest production per share among dividend-paying companies covered by Dundee, he said. “You can get considerably more of a return buying competitors.”
Trent Stangl, senior vice president of investor relations and communications at Crescent Point, didn’t immediately return phone and e-mail requests for additional comment on Friday.
Crescent Point, the largest oil producer in Saskatchewan, was a darling of investors for years while it was expanding quickly through acquisitions. However, the company has lately fallen out of favor over criticisms it was doing too many stock offerings, not demonstrating enough per-share production and cash flow growth from its existing assets and after lowering its dividend earlier this year.
The company probably had expected investors would react negatively to the equity deal, but by directing the proceeds to growing production from its existing assets, it may deliver what people have been waiting for, said Rafi Tahmazian, a partner and senior portfolio manager at Canoe Financial LP in Toronto.
“I sympathize with the market’s sensitivity but I think we have to give the company a chance, specifically because they directed this cash to organic growth,” Tahmazian said in a phone interview. “Definitely, this was going to be a controversial transaction.”