Why Raphael Thinks Suncor Shares Are Heating Up

Why Raphael Thinks Suncor Shares Are Heating Up

over 2 years ago2 mins

Summary:

  • Emerging markets will fuel demand for oil in coming years, boosting traditional energy companies like Suncor.
  • This healthy business is poised to benefit as the world reopens following coronavirus.

Tell us about yourself, Raphael

I’m a Swiss investor looking for undervalued stock. I have a diversified portfolio across the globe, always looking for hidden treasures.

What’s the pitch?

Medium-term investment in Canadian oil company Suncor (ticker: SU). Despite the increasing demand for electric and other sustainable energy sources, I am convinced that, in the mid term, oil will remain one of the top resources to fuel global growth – especially in emerging markets. In addition, I believe that Suncore is able to transform its business over time and invest heavily in research to increase the mix of energy sources provided.

What does Suncor do?

Suncor is an energy provider in Canada. Their operations include offshore oil production, oil sands developments, biofuels, and wind energy.

What’s your three-point investment thesis?

  • The company seems to be in a very healthy stage, doubling cash flow from $1 billion in the first quarter of 2020 to $2 billion in the first quarter of 2021. Suncor has a very high asset-utilization of 95%, which is around 20% higher than its Canadian peers.
  • Post-COVID, business is back in most western countries and will continue to grow for the next 12-24 months. This will have a positive impact on oil demand, pushing up prices for oil.
  • The US dollar will remain low considering the amount of money pumped into the system over the past year, which has been a positive stimulus for the oil price.

What are the key events you’re watching?

  • OPEC+ production announcements.
  • Discovery of new sources of crude oil, from Shell or Tamoil, for example.

What’s the upside potential if your thesis is correct?

The company shows strong growth indicators. If it manages to keep increasing business volume – especially cash-flows – I would expect growth of 20-30% over the next 2-3 years. 

What are the big risk factors you’ve spotted, and how do you plan to mitigate them?

The one risk I see is that oil won’t have such a great comeback as expected and emerging countries will jump directly to electric or other energy sources – as they did with the internet. I will mitigate my risk simply by diversifying my portfolio. I will invest in alternative energy source providers or battery producers.

What do you think of Raphael’s pitch? Are you equally sunny on Suncor? Tell us here.

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