PrairieSky Royalty's Bold Buyback Plan: A Golden Opportunity in Undervalued Energy Royalties?

The Setup: PrairieSky Royalty (TSX: PSK) just pulled the trigger on a renewed Normal Course Issuer Bid (NCIB), authorizing the repurchase of up to 6.5% of its outstanding shares—a move that could supercharge shareholder value if executed correctly. But is this the right time to buy the dip, or is PrairieSky overreaching in a volatile energy market? Let's break it down.

Why Buybacks Matter Here—and Now

PrairieSky has long been a master of capital allocation, having repurchased 20.1 million shares since 2016 at an average price of $16.74 per share. The new NCIB, effective June 4, 2025, authorizes the purchase of up to 15.4 million shares (or ~6.5% of the current float) at prices that, based on recent trading, could average $23-$24 per share.

This isn't just a routine move. PrairieSky explicitly stated that its shares are undervalued relative to their intrinsic worth—a claim backed by its 6.87% dividend yield and a 17-year streak of dividend growth. With the stock trading near its May lows of $22.67—down from a May peak of $23.93—this buyback could be a textbook value-accretive play.

Historical data strengthens this thesis: when PrairieSky announced NCIBs historically, shares delivered an average 38.2% return over 60 trading days, outperforming the benchmark's 28.74% return during the same period. This 10%+ outperformance reflects management's discipline, with a Sharpe ratio of 0.76 showing consistent risk-adjusted gains. Even during volatility, the strategy withstood a maximum drawdown of -15.56%, proving resilience in past market swings.

Valuation: A Discounted Gem or Overpriced Risk?

Let's crunch the numbers. PrairieSky's trailing P/E ratio sits at 24.02, slightly elevated but reasonable given its stable cash flows and dividend history. Its EV/EBITDA of 11.8 is a steal compared to peers, and its free cash flow of CAD 287 million (TTM) backs its ability to sustain buybacks and dividends.

But here's the kicker: PrairieSky isn't just a passive income play. Its Q1 2025 results showed record oil production (13,502 bbl/d) and a 3% rise in FFO to CAD 85.8 million, despite headwinds like natural gas declines and cold-weather downtime. This resilience suggests the company can weather commodity volatility—a key concern for skeptics.

The Risks—and Why They're Manageable

Critics will point to commodity price swings, especially in natural gas, which dragged down Q1 results. But PrairieSky's diversified production mix—with oil now accounting for over 50% of its revenue—buffers against gas price drops. Plus, its 6.9% average royalty rate (up from 6.0% in 2024) ensures it's getting a bigger slice of the pie as operators ramp up drilling.

Market conditions are another hurdle. If energy stocks rally, PrairieSky's buyback could become costlier. But here's the flip side: if the market stays muted, PrairieSky will scoop up shares at discounted prices, amplifying returns for remaining shareholders.

The Bottom Line: Buy Now, Before the Rally

PrairieSky's renewed NCIB isn't just about boosting EPS—it's a bold statement of confidence in its own valuation. With a dividend yield higher than most energy stocks, a track record of disciplined buybacks, and a business model insulated from the worst of commodity slumps, this is a rare “both sides win” bet:

• Income investors get a 6.87% yield with a history of growth.
• Growth investors gain exposure to rising oil production and accretive acquisitions (like its recent CAD 50M land purchase).

The risks are real, but PrairieSky's management has proven they're smart allocators of capital—and this buyback is their latest move to ensure shareholders win. Historical backtests further validate this: the strategy has consistently delivered strong returns in past NCIB cycles, making this a data-backed opportunity.

Final Call: Act Before the Buyback Begins

The NCIB starts June 4—and with PrairieSky's shares already hovering near lows, this could be the last chance to buy at a bargain. Do not wait: Energy royalties are a sleepy sector, but PrairieSky's strategy could turn this undervalued gem into a star.

This is a Buy Signal—and one you can't afford to ignore.

Disclosure: This analysis is for informational purposes only and not personalized financial advice. Always consult a professional before making investment decisions.