Sundance Energy remains a stock in this basket that has become completely unloved. The transaction to acquire Tier 1 Eagle Ford assets from Pioneer was sound and made strategic sense. Operationally the company has delivered and proven the assets to be high quality with production from wells drilled to date outperforming estimates. As we sit today, the company continues to guide toward $40m of free cashflow. Based on the current share price, and annualising the free cashflow number, would imply a yield of over 40%. In addition, given that leverage remains at a reasonable level (with net debt below two times operating cashflow), this cash can be used to return to shareholders and deleverage. The strong hedging program has turned the company into a manufacturing business more than an oil company with 85% of 2019 production hedged at $62/bbl WTI and 2020 40% hedged in the high $50 per barrel.It is widely known that the highest free cashflow basin in the US onshore is the Eagle Ford but the Permian is preferred due to growth upside. It is consistently commented from the likes of EOG, BP and Pioneer, that the basin is the sole contributor to free cashflow to fund the Permian growth. A pure play, junior in the basin with Tier 1 assets should therefore be a cash cow and we feel that we are on the verge of seeing this cashflow in Sundance. The company has continued to reiterate guidance on this front. It feels a strong candidate for takeover given the company trades at 2.5x operating cashflow post interest and will be on a greater than 40% free cashflow yield.From Tribeca ASX letter.
SEA Price at posting:
15.5¢ Sentiment: Buy Disclosure: Held
