May 10, 2022
Suncor's undervalued stock an easy win for Elliott: Rafi Tahmazian
No difference between ambition laid out by Elliott and Suncor: CEO
Elliott Investment Management LLP likely has an easy win on its hands when it comes to its push for change at Suncor Energy Inc., according to a prominent energy investor.
“I think for Elliott, though, it's an absolute win-win situation for them because this whole [energy sector] is just violently undervalued in the market today regardless of where they've come from,” said Rafi Tahmazian, senior portfolio manager at Canoe Financial, in an interview on Tuesday.
“These stocks are up dramatically since March of 2020, but not nearly commensurate with where the commodity prices have gone and the profitability of this group.”
Elliott, which recently disclosed a 3.4 per cent stake in Suncor, detailed a plan aimed at boosting the company’s lagging share price and overhauling its management team. The plan includes nominating five directors to Suncor’s board and a potential sale of its network of Petro-Canada gas stations.
While some Suncor shareholders are receptive to certain proposals from Elliott, others question whether the plan will unlock as much value as the hedge fund claims, Bloomberg News reports.
“I think the right thing for Suncor to do is to say to unitholders, ‘Don't worry about it. We're going to talk to Elliott. We're going to figure out what is going to make them happy. Let's see if there's something we can do with them,’ and allow the intellect to work between the two parties,” Tahmazian said.
With Suncor’s stock price underperforming its major oil-producing peers such as Cenovus Energy Inc., Canadian Natural Resources Ltd. and MEG Energy Corp., Tahmazian added Elliott’s investment is still in a good position, regardless of the outcome of its demands for change.
“I think Elliott looks at this like, ‘This is just a cheap equity to own - if we can ruffle some feathers and try to create some more value quicker, that's even better.’ This was an easy, easy activist situation for them,” he said.
Suncor’s latest quarter showed the improvement many investors have arguably been waiting to see. The company beat earnings expectations and posted a $2.95 billion profit, thanks to higher oil prices. It also raised its dividend by 12 per cent to 47 cents per share.
The results could make it harder for shareholders to determine whether Elliott’s activist push is truly needed, Tahmazian noted.
“The results that [Suncor] published didn't make it easy on investors to distinguish between what Elliott ultimately wants and what Suncor is offering because this was a good report,” he said.
“This quarter came out materially better than prior quarters. It's the first one. And so, it gives shareholders pause in terms of Elliott's changes, [which] are not dramatic changes.”