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Seen someone post saying the high commod prices makes a new asset purchase by Sqz less likely, I don’t think this alters likelihood at all as acquisitions all have contingent payment clauses bolted on atm to ensure sellers are rewarded if commod prices remain elevated for a period after deal completion
Agree with comments made on this thread and just to add if they do ever intend moving to the main market (which i'm beginning to doubt), in the past ive seen aggressive growth companies move to main market and do scrip issues because institutions have requested more liquidity in the share price . SQZ only have 270 mio shares in issue , not large for a company chasing a multi billion valuation with a large proportion tightly held ?
Either way I would rather have a dividend than a share buy back which will probably achieve little given the way this share price behaves.
I would say people's inability to understand free cash flow from profit and crucially the windfall tax (WHICH IS COMING) have dragged this down. Once we find out how onerous (and ridiculous) the windfall tax will be, we'll have that certainty at least and can re-rate. The issue is likely staying Seria's hand too regarding M&A/dividends/buybacks etc. How are you supposed to plan ahead when you don't know how much tax you are going to be paying and what other kinds of BS terms you'll have to comply with?
I should add that a buyback right now wouldn't be bad, I just don't think given current reserve life that it's the very best thing to do RIGHT NOW.
Would a buy back really be the best option right now? Buy backs make the most sense when you have long reserve life left AND a low stock price. Without long reserve life you are buying back shares in a business that may not exist. Yes they aren't running out in the next couple of years so not as much of an issue as if they had say 4 years of reserves or something.
If NE comes in then that's a different matter, but will the share price be so low after that? Probably not. Dividends and M&A/organic growth make the most sense at this point in time if you ask me.
Boardguy
I listen very carefully to all what’s said in presentation etc so I know clearly what’s been said regarding strategy, Alex Stahel who presented the recent Twitter Spaces session is Swiss & faces tax issues from dividends so of course he’s championing share buy backs, he also says he holds 0.7% of the register & Id imagine in contact with MF regularly, from these sessions there’s clearly an international presence in shareholders who may face the same implications.
From my post this morning re GKP, they clearly adapt to situations, hence bolting on a Special Dividend… why can’t our Bod do that? you mention the cash build.. I’m not particularly comfortable with cash sitting at around 50% of the market cap, we’re prime to be taken over now.. not something I want to see at this stage.. when results were released in April we were over £4 per share, market cap circa £1.1 billion, it’s been downhill since that day, & we’ve lost circa £300m off of our value, whilst cash has risen, the Bod could quite easily adapt to the current situation & announce a change to the dividend, which would lower cash to market cap & possibly give us a boost…. will they.. I very much doubt it.. waiting until September interims might be to late..
boardguy - exactly what i am expecting. A combination of all 3 seems likely given the rate of cash accumulation. The 'deal' aspect is probably the toughest call for the BoD and the volume behind having to act on the other options will become deafening before too long, all other things being equal.
In case anyone has not listened carefully to the recent interviews/Twitter Spaces recording, Serica are quite clear about their regular dividend being something that is there to reward shareholders even during times of lower commodity prices, and should be seen as progressive. At times such as this with very healthy cash growth they could announce a special dividend (though they claim many holders dislike the tax treatment), share buybacks, or M and A. Doing none of these and instead letting the cash pile grow is, after a while, not comfortable as it raises the risk of being a takeover target. Reading between the lines, I think they want to reinvest for growth and find that perfect deal (perfect would be something they can add value to, rather than something that is already fully exploited), but I suspect if they cannot find something soon they will have to reduce cash through buybacks and/or a special dividend.
I expect there will be some sort of special divi at some point given the rate of cash accrual. Be a nice bonus when it comes but we can simply hand it over to our utility suppliers to pay the household bills when winter comes.
GKP bolting on a special dividend to their proposed annual ordinary dividend, to be approved at their agm by shareholders, they seem to get the balance right between capital expenditure & shareholder distribution…..
They hold less than half what we have in cash on the books, worth a read of their RNS this morning for comparison…
I agree Newkotb. What I never understood and still do not understand is to why they have not at least bought a stake in another listed company.
Problem is , in almost 5 years, even though SQZ state every year in their interims/ EoY results they are looking for M&A …. They have constantly failed to deliver… now in times of high inflation and elevated commods do you really think that SQZ will be able to deliver value over volume as one of their stipulated prerequisites … I think not , if the cash can not be used to drive the business forward without a doubt it needs to be returned to shareholders
Aimo & dyor
I don't disagree with the logic for caution - they need to allocate well and only where value can be added. However, as time ticks it becomes more unsustainable a line to take, how bit is this potential acquisition?! Each month that possess the pressure increases. The buybacks will help too, once approved and considering how poisonous O&G is ESG-wise it's probably a good idea. Time will tell!
Agreed… strong FCF yield is a huge positive as long as the free cash is used to drive more value. When it sits in the bank, it ultimately becomes dilutive. The cash belongs to the shareholders and they invest in anticipation of return. If shareholders want to hold cash, they can do it in their own savings accounts. So the BoD should be driven to find ways to deploy the cash in additive ways or hand it back. My view is that the BoD is aware of this and is looking for ways to deploy it. They will know the clock is ticking but won’t (hopefully) allocate it poorly.
I expect a combination of returning it to s/h (buyback + divis) and investment in producing assets. Mitch is clear that they will only pursue opportunities to which they feel Serica can add value. I’m ok with that.
The greater the proportion of the MC which is cash, the harder it is for the active part of the business to make a good rate of return. If the cash cannot be put into service to generate a return then it is a drag on the business. There is more than enough cash to fund reasonably expected CAPEX.
As pessimisric as upomega is I fear he may be right on this one. The cover given is the search for M&A, which isn't really happening and even if it does happen could use debt (as it's a solid profit making company SQZ). Can't see the logic except to maintain the share price until that isn't as significant anymore. There should have been a special decided in my mind, if there's a special oil tax it'll be BP and Shell in the headlines not really SQZ.
Sorry should read Mr.Fibbles. damme auto correct on phone.
I agree Mr gobbles.one positive is the dilution of the shares with the free options. The buy back should counteract that and use up the cash pile in the same process.
Maybe the board could just hand them a hundred million instead of going through all that inmv inmho dyor.
Hi new investor here. I listen to the results from SQZ and surely during the good times cash should be accumulated to pay for projects during the bad times when finance is harder to get yet asset prices are low. The cash also acts as a buffer to the share price during the bad times. I am not the smartest tool in box but this what surely must happen? The need for shareholders to do something with the money during the good times is a little short sighted.