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I'm far more bullish long term than people on here. The upside is astronomical.
They had a 200m Ebitda in 2018.
This isn't some tiny little tinpot company that deserves an ebitda of 2-6, it has the 3rd biggest diamond resource in the world. Of 250mn carats. That is truly enormous.
Capex is expected to drop from now on along with FCF increasing in the future.
Diamond prices are expected to surge from 2020-2050. This will make the profits absolutely go through the roof in years to come. The asset value will increase and get written back up and more in the accounts.
Once a few of these positives get lined up, we will not be paying 7.25% interest on debt, which will fall straight to the bottom line in the ballpark of 50mn per year.
I very much doubt the largest shareholders would accept 30p in a takeover bid. The price has only been below 20p for a couple of months. Sure people buying in now get excited about this number but these people own 5-15% of the company each. They wouldn't accept it.
Considering these points above, the upside of this stock is pounds, not pence.
What we need to see now, is further headroom from creditors, waving of covenants for Feb/Aug tests in 2020 then the stock price will multiply. I think the market is overly worried about the debt and the short term diamond prices along with having a forced ii seller aggressively dump the stock, along with shorters jumping all over this causing an avalanche in the price.
This will all be reversed within months imo and the share price will go back into the 30's,40's and 50's by summer 2020.
They raised money with an ex-rights price of 56p last year. They have not diluted since then and have specifically told us they are not considering dilution to pay the debt. They don't need to. The company has not dissapointed since then by a factor of 90%!!!! It's doing fine and arguably well considering operational cashflow has become $70mn.
I do agree with it being the steal of the century. I do not personally care what the results will be on Monday, they will likely be boring. I will be holding for further news on the above and until the price goes to a far more sensible level which could take several weeks/months. Then I will top-slice and forget about the rest for a long-term hold of over a quid.
This won't go to 30p overnight but I bet it could do it within a few weeks/months of short-covering and general buying, director buying, broker note upgrades, creditors showing support, diamond finds, fcf generation etc.
People betting on the results of Monday are just gambling for 10-20% here or there which imo is not a good idea compared to buying and waiting for the price to go to a more sensible level.
On potential takeovers I do wonder if Rio would be looking at Petra. They have said they intend to stay in the diamond mining business after Argyle closes but they will be no bigger than Petra in terms of production at that point. By buying Petra they would replace 30% of what they lose at Argyle but with a far higher price point and improving margin. Couple that with them being able to refinance and slash the borrowing cost it looks to me like a 'why wouldn't you'. Cant believe bankers aren't pitching these ideas to them as we speak.
That then takes us on the what would Petra be worth.
If you assume Petra can generate 70m FCF today say plus 20m conservatively in big stones, plus 2022 opex saving (banker for someone like Rio to generate), plus 25m saved in financing you get to around 160m conservatively at todays prices (I put no numerical value on the likelyhood they would be higher in 2022 after Argyle closes, stock clears and higher demand). 5x forward earnings 900m less the debt gives you 400m ish or 45 p a share. Even if you knock off 30% for my dodgy arithmetic its still got to be worth around 30p a share to them or someone else.
All a bit fag packet I know but it does illustrate I think how undervalued this share is vs its medium term potential. I cant see it staying independent for long.
Agree with you s far as the upsides are concerned. Downsides are not in their control though (Trump, China etc etc). Petra also need some luck on this as do many others before we ever to the multi bagger some of ya here believe is possible.
I'm hoping for bland. I'd be really disappointed if there were any dramas in the Q1 numbers and would take that as a strongly negative signal. Shorts would enter en masse.
Duffy should be in steady as she goes mode until he has visibility of improving costs, mix or some other FCF positive impacting event (big stones). He needs to give himself space to influence the things he can control. If he is not able to do that then there is a a problem.
So bland is would be good!
Colonel,
I think you hit the nail on the head with that post, it still wont please everyone though, so a slight re- trace is to be expected before the market wakes up and realise what they have got.
Hi Steve, I think if we do go back to 6 or 7 it will be very short lived and just a knee jerk Sell off due to the profit showing down a bit. Diamond prices have been lower etc.
Dire was probably a strong word, operationally, they are making more than the entire market cap. Ebitda is almost 3 times the market cap!
We had a rights issue at the equivalent of 56p ex rights price just a year ago.
This company is ginormous. But it wouldn't surprise me if we get one or 2 more Sell offs to shun a few of the weaker holders out before we go up back into the teens/twenties.
After reading the reports last week, you will probably find monday rns will show progress as along the lines as forcast. That will probably be abit disappointing for some, just be patient!
Colonel Kaba as you know I'm averaging in middle 7s and in this till spring and think depending on what we read Monday this might retrench to 6 or 7 but not 5 but we do need China American trade war to be resolved but does trump want it nearer election that's along time to wait most important is Duffy recurring costs and finding some fat ones Colonel thanks for amer looks promising been having some small fun with EUZ this week come England tomorrow