Freehold Royalties Ltd (FRU.TO)

Stable, boring company for some time. With Prairy Sky, there has been more attention in the space so they can pick up more assets in the market space. They are unhedged, but have very little capital that they spend. It makes for a good business model where you don’t put much capital in the ground. Thinks people will switch from Prairie Sky into this one.

Benefit from royalties from fee lands they hold and so less exposed to commodity price risk. The model makes sense. It is more conservative than others in the space.

At this point, this looks reasonably attractive. PrairieSky (PSK-T) really started putting pressure on management to be a little more acquisitive and show a little more growth. Because of this, he suspects they will be looking to buy more properties. A very conservatively managed company. He would slowly buy on this one.

Thinks they pay out a pretty high proportion of what they bring in. High oil prices certainly helps, which leads to activity levels. They drill a little bit themselves, but don’t have the same operating risks as a regular drilling company. You do need that activity level. People tend to pay a lot more for these royalty companies, because they see the lack of risk. He is on the sideline at the moment. 6.5% dividend yield.

Long FRU-T and Short PSK-T. Thinks PSK is overvalued. Likes both businesses. They are efficient, just collecting a royalty. When FRU gets closer to PSK in terms of PE, cover the short.

6.3% is a lovely “yield while you wait” scenario. Also gives commodity exposure, giving some optionality. It has the hallmarks of a great, long term investment. Returns lots of money to shareholders. Very, very strong balance sheet. A marvellous combination of a good, solid investment style that he wants to pursue.

Chart is showing a little of a head and shoulders top, but the pattern doesn’t always mean it is going to come to pass. The potential breakdown is at around the $32-$33 range. The present price, to him, would make it a really good risk/reward from the standpoint that that you could Buy it here, sort of break down below $32, and give yourself a few percentage points. Take 3% minus $32 and that would give you a pretty good place to define Stops. He would take a punt and if it breaks $32 you know there are some bigger issues. The recall stuff has already been factored in.

There are very few royalty based oil companies in Canada. Their 12-14 times multiple is where Prairie Sky will likely price out. Thinks a successful IPO of Prairie Sky would be a significant tailwind for FRU.

Really likes the royalty business. It is immune to cost increases and tends to be much, much less risk. Valuation on this is relatively high, but you get paid 7.5%, while waiting for the IPO when Encana (ECA-T) goes ahead and spins out the Clearwater royalty.

7.6% yield because it is a true royalty trust. Not a lot of capital to put in to their projects.

Good yield but doesn’t expect much upside in dividends. If oil prices went up a lot, which is not expected, they could increase the yield more. A steady company and in a good position. 7.27% yield.

Own the royalty rights to the oil and gas. They put up no capital if someone wants to drill.

A solid name. He likes the royalty businesses. They own many, many different royalties. If one property has a problem, it won’t impact their bottom line. It is an opportunity to jump in.

700-800 barrels per day production. Have royalties on oil/gas properties, mostly in Alberta.

One of the impediments to him buying this stock was the higher taxes the company is going to have to pay. Feels 35%-37% of cash flows could be taxable this year and therefore payout ratios go higher on the stock. Not a cheap stock, trading at about 13-14 times EBITDA to net adjusted cash flow. Also, doesn’t like the unhedged nature of their oil production. 7.7% yield.