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jjhbev : I'd really like to know why people keep bringing up the share buyback option? At these undervalued prices, isn't it the potential dividends that have a much greater effect on the sp? I know that in the next financial year, the dividend would be higher per share if the same amount of cash is available, but investors may be tentative at the moment and not prepared to wait until the next year, rather taking the guaranteed money in the pocket.
I would argue that, at this point in time, the dividends will drive the sp up much more than a buyback. Let's take an example. If the divi is £2/share and the share price is £12, that is a 16% yield. Let's say that investors want to keep that high yield, then the buyback and divi would have the same effect (remember that paying money out of the company effectively reduces the sp by that amount .......). However, we are talking about double that in divi, which would mean that a 16% yield would equate to doubling the share price, while a share buyback would add nothing in the first year, i.e. £20 (£24 less the £4 divi) vs £12 at the end of the day. So, if you were to sell up at the end of the financial year, divi payments would potentially get you £8 profit on your share at £12/share purchase, so you are talking about 66% returns for the year :); a share price at £12 would get you nothing in that first year. Obviously, this is dependent on the share price, and as you approach the £24 mark, the difference between divi and share buyback move towards zero ........
And I'm assuming that a share buyback is still reducing the free money in the company in the same way as a dividend, so you only get to see the benefit in the next financial year .......... it doesn't matter that there are less shares in circulation, it removes money from the "pool" in the company that also is calculated into the share price (in theory), balancing out.
Am I missing something? I know I am simplifying things a bit, but the principle holds, no? Someone correct me if I'm wrong, please. I am not on board with share buybacks at the moment.
stocko have a divi of 9801 c per share at a yield of 45% and next year a yield of 56%
The numbers are indeed staggering. Based on the (very) recent update the net profit for the half year will have been approx. £3 per share. Given that those profits were based on an average coal price of $266 whereas it is now $70+ higher than that, the profit for H2 could be 50% higher IF (a very big if) that level of coal price were to be sustained.
That potential 50% uplift is based entirely on the coal price and does not include any uplift in the level of sales. IMO there is sadly no prospect of any significant improvement in Transnet performance coming through in the current half year. As per the comments made at the Exxaro meeting on Monday the situation at Transnet shows no sign of having improved and the government lack of action is clearly not going to help in the short term. See the article below on miningmx.com. The gist seems to be “there’s a lot of talking but the numbers are not improving”.
"Frustration with Govt dithering on rail network bubbles up at Exxaro investor meeting - Miningmx"
So… when it comes to distributions, I agree that we should be looking at around the £2 level for H1 – with the potential for a further significant increase for H2 but not much progress on increased sales.
Personally, I would like to see the idea of a share buyback put back on the table. I know that this was firmly rejected by PIC but I would suggest that there is actually a strong South African benefit with a share buyback.
The SP is absurdly low when measured by any metric – P/E, Yield, Cash held compared to MCap. There are of course ESG/Climate Change issues which impact the appetite for many investors and therefore suppress the SP but for South Africa/PIC the position is clearly one of Coal being part of things for a very long to come. Current coal prices and production levels will see the SP at a P/E ratio of just over 1 – and this would be below 1 if/when Transnet ever performs adequately. If Thungela – as a South African company – can buy shares many (most?) of which are currently held by “foreigners” this must be of long-term benefit to South Africa.
I am not usually a big fan of buybacks but in this case – and on the basis that the buyback amount would be limited to a fraction of the amount of any dividend (e.g. 10%-20%) – it seems to me something that benefits everyone.
A final point on the dividends & specifically the Withholding Tax. I have unfortunately not made any progress. Ryan at Thungela initially undertook to try and get Computershare to assist. Unfortunately, I have not heard anything from them and my last follow-up to Ryan has not been answered. Anyone else making any progress?
The pre close statement refers to Transnet's stated projection that volumes will increase circa 9% in the second half of the year following July maintenance. TGA's assuming it will take it's proportionate cut of that. I agree it's a little ambitious - ideally we'd be on track already - but it is nice to know that the 9% hasn't been plucked from thin air.
Also agree re your interim divi projections. I'm sticking to R38 as my guesstimate.
7.8 million tons in the second half of 2022? In my opinion, that is a big ask, I think. I do not have faith that Transnet will suddenly get better and there is also a shutdown planned by Thungela in July 2022. Based on this, my expectation is in the 6.5 million tons region. Go on, Thungela and Transnet, prove me wrong, please!
Even at 6.5 million tons, we're talking about cash accumulation of another R10 billion rand, just using a simple ratio from the first half of the year and assuming they had R6billion in the bank end of last year and had R15.3 billion end of June 2022 (figure stated in the pre-close statement this year). If Thungela pay out the same ratio as last year, we are looking at about £1.95/share dividends (for the first half of the year!) and a bit more for the second - let's say £2/share dividends. At current prices of £11/share, investors are looking at about 36% yields for the year. Mind-boggling! If investors would be happy with 15% yields ( a little better than the 14% of Rio Tinto), you are looking at a potential share price of about £26 and a share price of £36 at 10% yields.
This all assumes an average coal price of $280/ton for the remainder of the year, though ..........
If they do actually achieve 7.8 million tons to bring their yearly figures up to the minimum target of 14 million tons, these figures become 39% yields, £28.60 and £43 respectively.
Of course, all a bit of speculation. The fact is that the share price has been following the general energy and commodities sector down, losing 18% in the last month on fears of recession, with the Richards Bay coal price increasing continuously over this same period from $311/ton to the current $349/ ton (12%). Just goes to show that you can say what you like about the figures, the market is driven on fear and greed, and I think we are sitting firmly in a period of fear at the moment.
I like doing predictions :)
Yes 2/3 months is perhaps a bit ambitious. I think it's about 5/6 months, factoring in circa $300pt relative strength of the dollar and the projected H2 export volume increase. The pre-close statement suggests they need to hit 9% above H1 2021 levels (so around 7.8mt) in H2 to stay in guidance.
Cash was about £800m in June. At $291t (futures for RB next, 6m ,and 1 year/3) it's making about £2.1m a day so I would say nearer a year. However, if you are bullish and use $346 next it's £2.48m a day so nearer 8mts. A fairly large investment here from the sub 300p summer so tend to follow it very closely.
Yes - I wonder if any company has ever paid out more in it's first annual dividend than it's market cap !
If coal keeps it up, it won't be long before cash in the bank exceeds market cap - 2/3 months perhaps.
Gross revenue per month currently ~$400 million.