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Sorry wrong BB
Apologies
The Directors put 500k of their own money into this at the last placement. No better sign of confidence in the company.
If one of the trials works this quadruples.
Now look how many they have..
just do a Genel/GKP and publish monthly cash payments received v sales invoiced....no bull, no waffle, just do it.
considerably more trades than posts today.. a not particularly usual occurrence here :-).. so always a positive to find if you look hard enough ..( 5 posts is not a lot of posts either, in fairness)
this time next year rodders.. you know it makes sense !
Thanks for the positive comments.
Fine analysis and much appreciated for posting IRT.
If cash collection is ongoingly as strong as it seems then this is very undervalued indeed currently. Hopefully the half yearly fully supports this thesis.
If yes, then Directors should be thrilled to buy low anywhere even close to here, and management staying strong and not doing some sort of mates rates placement to existing II's - seeing them average way down via off market - for eg for some acquisition that is just not necessary at this time is very important !
(eg Trafigura have just bullied Peter Levine into doing an unnecessary placement to bring their average price big down in their PPC holding and PI's have dumped in anger and new II's are steering clear perhaps because Trafigura may well have this guy in their pockets..and the s/p is wallowing near all time lows, even though the company is as strong/good shape as it has been for years ...imho )
Generally, the good thing about illiquid names is meaningful buying IN THE OPEN MARKET can push their s/p's up very quickly indeed. Again , a few million quids II buys in the open market here is peanuts to them yet likely very significant for this s/p.
Part 4
Summary
What to make of this is that Savannah’s communications are constrained by a short period of ownership of the assets, which presents a minimal track record, and being poor in releasing only financial information that means more to accountants than it does to most investors.
I see now that figures for cash collections by themselves did not reassure investors that Savannah is getting paid, and the recent FY results on their own did not provide investors with the important information about the improvement in receivables and say much about any improvement in the expected credit risk since ownership.
I am still hoping that Savannah will soon present this information to investors in an easily understood manner.
Part 3
Financial calculations
My next calculations involved a spreadsheet, as I wanted to confirm that the reduction in receivables from $114.2m to $73.1m and the declared cash collections were consistent with each other over the period H2 2019.
This involved calculating the ‘Change in gross trade receivables during H2 2019’ from the difference between ‘Invoiced sales’ and ‘Invoices paid’.
The FY results give the required sales information on a pro-forma basis for FY 2019, and the supplemental admission document gives H1 2019 sales, in the form of revenue and contract liabilities, from which H2 sales can be deduced.
The ‘Invoices sales’ are made up in US dollars, but are paid at the CBN official rate of 306 Naira, and then the Naira received are converted into US dollars at the rate of 360 Naira. The US dollar amounts after conversions are the cash collections amounts for which figures were given above.
- $168.8m * (360/306) = $198.6m of ‘Invoices sales’ in 2019
A foreign exchange loss occurs because of the exchange rate differential. Some of the foreign exchange loss incurred can subsequently be recovered from NDPHC under the Calabar GSA, but this return of cash is not included in the cash collection figures.
Carrying out the calculations per the formula above, as expected, the change in gross receivables does match the change reported through the balance sheets, but I am left wondering why Savannah did not make more of the large improvement in receivables? Strictly speaking the FY results didn’t need to report on progress with receivables ay year end 2019 relative to end June 2019, though it could have reported on the period since ownership, but this was only six weeks in 2019.
Some comments about receivables were however made by directors in their statement of a going concern:
“The Group has entered 2020 in a strong financial position with cash on balance sheet of US$46.3 million and high receivables that it expects to collect from its customers in 2020 and the Board remains satisfied with the Group’s funding and liquidity position.”
Part 2
Financial extracts
So onwards with the analysis and extracting the important information from the FY results and the SAD. The first look is at the cash collections.
Cash collections are cash payments to Accugas and Universal for sales of gas, condensate and oil from the Nigerian Assets. The figures now available for cash collections are:
- $168.8m for FY 2019 (per the SAD on page 43)
- $96m for the period of ownership until end April (per the SAD on page 44)
- $55.3m and $82.1m for H1 2019 and 2020 respectively (per the full year results on page 1)
- $43.3m for the period of ownership until year end 2019 (per full year results on page 16)
The above figures are all stated in US dollars for comparisons across the different time periods, but do not imply that the cash collections in Naira have been fully converted in to US dollars. Combining these figures shows collection of $43.3m for the period of ownership until end Dec 2019, $52.7m in the four months Jan to April 2020, and $29.4m in two months May and June 2020.
Cash collections since ownership have been substantial. Before year end 2019 there was a large collection to clear a build of receivables leading up to the transfer of ownership of the Nigerian Assets to Savannah in November 2019. Since the start of this year cash collections have followed some sort of even pattern which indicates that Savannah has continued to be paid. However the numbers to show whether cash collections have been sufficient for the historically high Accugas receivables to be reduced are not directly available from this set of FY results.
Savannah was only required to include in its FY results the Nigerian financial performance for the period since completion of the acquisition, so has made no comparison with the prior financials for the Nigerian Assets. However the change in receivables can be deduced by comparing end 2019 with the unaudited pro-forma balance sheet in mid-2019 in the supplemental admission document.
Receivables on the balance sheets are represented at fair value using an expected credit loss. As Savannah is expecting to get paid, it is more appropriate to look at gross receivables rather than their fair values. The relevant figures available for receivables and credit losses are:
- $60.6m and $30.9m fair value of trade receivables on 30th Jun and 31st Dec 2019 (per the SAD and full year results)
- $53.6m and $42.2m expected credit loss at these dates
Adding back the ECL gives gross trade receivables of $114.2m and $73.1m before the estimated credit losses. The first figure includes $4.3m expected payment of gas invoices paid by Frontier on completion.
The large reduction in trade receivables over the period H2 2019 is a promising sign of things to come. It will not be known for sure whether this has continued into H1 2020 until the interim results in September. However, as mentioned above, since the start of this year cash collections indicate
Part 1
The following write-up was done for my own benefit as I was worried about whether Savannah is being paid as the information that Savannah has released since completion of the acquisition of the Nigerian Assets has appeared obtuse. I was wondering if it was crafted so as to show a rosy picture as there was no mention of actual progress in collecting payments, apart from figures for cash collections, and some mentions of the cash balances and debt.
Now having put in the effort over the last days to establish the facts from published financials, I am still wondering if Savannah will take an opportunity with the publication of the audited results to make a presentation and be more transparent.
Over the last few months I’ve had concerns about whether Savannah is getting paid. Cash collections, which are not audited have been released as trading updates, do provide some assurance that Savannah is getting paid. After the AGM I thought that Savannah needed to be even clearer with investors that Accugas has being paid for invoices since completion, and that Accugas receivables have reduced from the historically high levels under Seven Energy ownership. It goes without saying that the only certain indication of whether Savannah’s invoices are all being paid in full is the reduction in trade receivables on the balance sheet.
Questions about getting paid were sidestepped at the AGM in June for reasons of the close period, and investors had to wait until the FY results. So is there now clarity on this issue of being paid in the annual results? Are investors any wiser about whether Accugas is being regularly paid regularly for the amounts invoiced? There has been more than one report in the Nigerian press suggesting that Savannah has reminded NDPHC, NBET and the Minister of Finance that payments are backed by the Calabar PRG. Whilst these reports were written with political bias, it only matters in the end whether Savannah is still getting paid.
Savannah reminded investors at the AGM that it expects to get paid for all outstanding invoices, but that the cash collections pre-acquisition compared to post-acquisition are like “night and day”, which suggests to me that the high receivables pre-acquisition are proving harder to clear.
What I did is to make use of all the information released by Savannah at different time points, and work through to confirm that the figures for cash collections and receivables are firstly consistent with each other, and secondly to see what picture they presented.
My conclusion is that Savannah has been coy about its successes in getting paid, but without speculating about the reasons, which may be many, the cash collections alone show that Savannah has been paid for invoices since ownership. The credit picture has improved, and the receivables have reduced with payment for much of the outstanding invoices prior to ownership.