Frontera Energy (TSE: FEC) (FECCF) explores, develops, and produces crude oil and natural gas. It operates through the following segments: Colombia, Peru, and Canada and Other.
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Frontera Energy recently announced that it will offer to buy back shares using a modified Dutch auction. In this process, investors will have the option to choose a price between $11 to $13 per share that they would be willing to sell their shares at.
The company will then buy back shares starting at the lowest price and work its way up until the maximum value of shares has been purchased. In this case, FEC is willing to repurchase up to C$65 million.
If the modified Dutch auction is oversubscribed, then the number of shares purchased will be prorated. This basically means that only a portion of the shares will be acquired from each investor whose sell price falls within the final purchase price.
The offer will cancel anywhere from 5.377% of outstanding shares (assuming a final purchase price of $13) to 6.355% of shares outstanding (assuming a final purchase price of $11).
Frontera Energy will pause its existing repurchase program, which allows it to cancel up to 10% of the public float, until the modified dutch auction has been completed. Shares finished 5.6% higher yesterday following the news.
Insider Activity
Insiders at Frontera Energy have been actively selling in the past three months. More specifically, 10%+ shareholder Gramercy Funds Management LLC has been the biggest seller of shares during this period. Overall, insiders sold $1.3 million worth of shares in the past three months, causing TipRanks’ Insider Confidence Signal to flash negative.
Nevertheless, it’s good to see that The Catalyst Capital Group, the company’s largest shareholder with a 37.4% stake, has advised that it will not be participating in the modified Dutch auction. This demonstrates that it continues to have confidence in the company’s future prospects.
Analyst Recommendations
Frontera Energy has a Moderate Buy consensus rating based on one Buy and one Hold assigned in the past three months. The average Frontera Energy price target of C$16.75 implies 44.9% upside potential.
Final Thoughts
Frontera Energy’s management team believes that the company’s current share price is very undervalued based on its assets, operations, future prospects, and financial position. As a result, it is buying back shares to unlock some of that value for shareholders.