Freehold Royalties’ Share Buyback: A Bold Move to Amplify Value Creation

Freehold Royalties Ltd. (TSX: FHL) has taken a decisive step to enhance shareholder value through its newly announced Normal Course Issuer Bid (NCIB). The company’s May 22, 2025, approval for a share repurchase program signals confidence in its financial strength and strategic vision. With the authorization to buy up to 10% of its outstanding shares, Freehold is positioning itself to capitalize on undervalued equity and accelerate per-share metrics. This move underscores a compelling opportunity for investors to align with a company poised to deliver outsized returns.

The NCIB: Scale and Structure

Freehold is permitted to repurchase up to 13,699,733 common shares, representing approximately 10% of its issued and outstanding shares as of May 14, 2025. The repurchases will occur through the Toronto Stock Exchange (TSX) and alternative trading platforms, with an automatic securities purchase plan in place to navigate regulatory blackout periods. Key parameters include:
- Daily Limit: 185,656 shares (25% of the average daily trading volume over the past six months).
- Weekly Block Purchase: One transaction exceeding the daily limit is permitted weekly.
- Timeline: The NCIB will run until May 26, 2026, or until shares are fully repurchased.

Why Now? A Financial Forte Backing the Buyback

The NCIB isn’t a gamble—it’s a calculated move rooted in Freehold’s robust financial performance. Q1 2025 results reveal:
- Production Growth: 16,248 barrels of oil equivalent per day (boe/d), a 6% quarterly increase.
- Strong Funds from Operations (FFO): $68.1 million, underscoring cash flow stability.
- Conservative Leverage: Net debt of $272.2 million, or 1.1x trailing FFO, a comfortably low ratio for the energy sector.

These metrics position Freehold to execute the NCIB without compromising liquidity or creditworthiness. The company’s net debt-to-FFO ratio is well below industry peers, as illustrated by the following comparison:

Value Accretion: The Math Behind the Buyback

Share repurchases at undervalued prices directly boost per-share metrics like net asset value (NAV), cash flow per share, and reserves per share. By reducing the share count, Freehold amplifies returns for remaining shareholders. For context, if the company repurchases 10% of its shares at the current price, key metrics could increase by ~9-11%, assuming no material changes in underlying assets.

The rationale is clear: Freehold believes its shares are undervalued relative to its asset base and cash flow. As CEO Ian C. MacGregor stated in the announcement, “This NCIB reflects our confidence in the company’s long-term prospects and the belief that current prices do not reflect Freehold’s true value.”

Risks? Considered, but Mitigated

Critics may point to market volatility or capital allocation trade-offs, such as delaying growth projects. However, Freehold’s conservative balance sheet and disciplined capital management mitigate these risks. The NCIB is structured to allow flexibility:
- Conditional Execution: Repurchases depend on market conditions and competing priorities, such as debt reduction or acquisitions.
- Covenant Compliance: The company’s strong liquidity ensures it can meet debt covenants even if buybacks proceed at full capacity.

Investment Thesis: Act Now

The NCIB isn’t just a financial tool—it’s a confidence signal. By prioritizing share repurchases, Freehold is demonstrating that its equity is undervalued and that management is focused on maximizing shareholder returns. Key catalysts for upside include:
1. Buyback Execution: Immediate accretion to per-share metrics.
2. Production Growth: Ongoing drilling and optimization in core plays like Alberta’s Duvernay and Montney basins.
3. Debt Management: A low-leverage profile enabling sustained capital flexibility.

Conclusion: A Strategic Buy at a Critical Inflection Point

Freehold Royalties’ NCIB is a landmark move that aligns with its proven track record of value creation. With a fortress balance sheet, robust cash flows, and a disciplined capital strategy, the company is primed to deliver outsized returns. Investors ignoring this opportunity risk missing a rare chance to buy into a high-quality energy royalty company at a significant discount to intrinsic value.

The time to act is now. Freehold’s buyback isn’t just a corporate action—it’s a compelling invitation to capitalize on a rising tide of value.

Note: Always conduct your own due diligence and consult a financial advisor before making investment decisions.