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Leverage Position of Suncor: Trending Higher

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Leverage position of Suncor compared to peers

So far in this series, we have discussed Suncor Energy’s (SU) stock performance, analyst ratings, and business segment dynamics. In this part, we will examine the leverage position of the company.

Suncor’s net debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at 0.96x in 4Q15. This is lower than the average ratio of 1.2x of its peers Chevron (CVX), BP Plc (BP), and Royal Dutch Shell (RDS.A) in 4Q15. This ratio shows a firm’s leverage position as a multiple of its earnings.

In 4Q15, Suncor’s total debt-to-capital ratio stood at 28%. This is just above the peer average of 27.1% of CVX, BP, and RDS.A. The debt-to-capital ratio shows a firm’s leverage position and capital structure.

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Suncor’s net debt-to-EBITDA

Suncor Energy’s (SU) net debt-to-adjusted EBITDA ratio rose from 0.51x in 4Q13 to 0.96x in 4Q15. Before analyzing the increase in the ratio, let’s understand the net debt trend.

Suncor’s net debt amid the volatility has risen from $6.2 billion Canadian in 4Q13 to $11.3 billion Canadian in 4Q15. This is due to a rise in total debt coupled with fall in cash and equivalents. Total debt has risen by 34% over 4Q13 to $15.3 billion Canadian in 4Q15. The rise in total debt was to fund capex, pay dividends, and buy back shares. Cash and equivalents fell by 22% over 4Q13 to $4 billion in 4Q15.

SU’s adjusted EBITDA fell from 4Q13–4Q15 due to lower earnings in the company’s Upstream segment. Falling adjusted EBITDA, coupled with rising net debt during 4Q13–4Q15, led to a rise in the net debt-to-adjusted EBITDA multiple. However, SU’s ratio is lower than its peers.

If you are looking for exposure to integrated energy sector stocks, you can consider the Vanguard Energy ETF (VDE), which has a 42% exposure to the sector.

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