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45 pounds loss sold at 128 plus mind you a lot more if sold tday .This drop dose not make sense to me
@ Asartara : Stifel reduced ITH's target price from 157 to 140 pence. Curious how one single analyst recommendation can have such an immediate impact.
Share price is now in oversold territory, looking at the 1 day chart.
We're now at the support level from 12 Feb, 2024.
I've bought more, this morning.
1 day chart:
https://ibb.co/h7MN1pf
Anyone know why there was such a large fall in the share price today?
And how do people here see the valuation of ITH when compared to other UK oil companies such as HBR and SQZ ?
I am interested in oil companies with good dividends and ITH/HBR/SQZ all seem to have good dividends at present
The obvious question though is will their dividends be maintained or increased in the future or will they be reduced
So do people here see ITH as better value than HBR or SQZ ?
I have also looked at BP and Shell but their dividends are less than half the dividends of ITH/HBR/SQZ
Why are the dividends of BP and Shell much less than ITH/HBR/SQZ ?
I am also interested in Var Energy as the valuation looks quite inexpensive
https://moderninvesting.substack.com/p/var-energi-norways-dividend-monster
Reserves: https://www.ithacaenergy.com/operations/reserves
Full CPR: https://ithacaenergy-files.fra1.cdn.digitaloceanspaces.com/NSAI-Ithaca-YE23-CPR-2024-03-15.pdf
2P reserves value at 10% discount rate = $4.35B
2C contingent resources value at 10% discount rate = $3.05B
And yet Ithaca is traded at less than its tax asset. What a bargain!
As per my calculation:
Jan: 42.5Kbbl/d oil + 20.2Kboe/d gas = 62.7Kboe/d.
Feb: 34.6Kbbl/d oil + 18.4Kboe/d gas = 53Kboe/d.
Digging deeper into the Feb numbers.
Pierce was offline in Jan so not a contributor to the 10Kboepd drop. Erskine and Scheihallion contributed 5,360 boepd.
The balance is Captain, 4,400 boepd down in Feb. Again, the status of this field would have been considered in the guidance, but could have been a surprise to the markets today.
Captain numbers have been noisy outside of last year’s shutdown - c. 3K drop between May and June 2023. Probably due to the ongoing EOR works, which are completed this summer. Guidance still had 2024 Captain production higher than 2023, but not by much.
On top of that, Stifel doesn´t like the proposed M&A transaction too much: https://www.proactiveinvestors.co.uk/companies/news/1044363/ithaca-s-proposed-eni-deal-is-the-right-strategy-at-the-wrong-price-says-us-investment-bank-1044363.html
"However, Stifel views the price paid for these assets as not particularly value-adding, equating the equity issued for the acquisition to the assets' value, thus creating no additional value from the transaction."
80p translates into 1 bUSD market cap., thats an interesting valuation.
Tax loss position sits at 4,5 bUSD, thus shields against corporate tax until 2029/30 in my opinion. Based on that, even without Cambo, ITH should be paying 200-400 mUSD annual dividend so 1,4-2,1 bUSD by 2030. Even if you consider ITH worthless by the time it consumed its tax asset because of no new Northsea investments and if you discount the expected dividend cashflows, you should arrive at more than 1 bUSD in any case (the 20% Rosebank share not considered).
But I am highly invested and might be biased.
Feb production is down c.10Kboepd on Jan production.
Ithaca confirmed the issues at Erskine and Pierce, which were fully offline in Feb, although the news on problems related to the infill drilling on Schiehallion was new to me, apparently the market was aware. (?) My take from the update last week is that Schiehallion is sorted, Pierce close, but little was said on Erskine, though I think I saw the problem related to a host facility, rather than Ithaca’s operations on Erskine.
As I like to remind myself ‘stuff happens’ in this industry, and it’s rarely good. That said, these Feb production numbers were known to Ithaca when they gave their 56k-61Kboepd guidance for 2024. However, the market (algos) is unlikely to react favourably to bad news even if flagged.
Just quick thank to the numerous posters for the really informative/insightful considerations in the last couple of days, on the EPL, forward looking dividend, ENI. The detail, the number crunching delivered takes time (I know having done likewise for other stocks I hold), and.to do such, to share such here so we don't all have to, is a true service. So thank you.
My tuppence, I'm a big fan of ITH. EPL or no EPL/replacement EPL they are laser focused on returns e and we will get such riding Delek's coattails. And the ENI deal sounds great, if only at the level of garnering economies of scale/efficiencies.
This is well overvalued compared to others !! I called this when it floated around 250p which was ridiculous and was only going one way .
This will be 80p in the next 18 months so still worth shorting.
In this political climate does anyone think Cambo is likely?? I am hoping the Eni deal is the launch pad for this to happen. Seems highly unlikely and 78 % proper wind fall tax on route it is hard to stay positive
I think it was Stevo12 who clarified aspects of the EPL (including the timing of payments related to tax loss status) in posts on the ENQ and HBR board.
Historically, in the UK non oil gas sector, capital spending was written off over various periods of time depending on the asset purchased. Recently, the UK has gone to full expense of capital, though there will still be historic capex to write down, D&A as you describe it.
However, the UK oil gas sector has operated essentially full write down of capex for a long time – 40% first year capital allowance against a 40% tax charge. An additional 6.25% allowance was added after the asset moved to production.
When the EPL was 25% the EPL allowance included an additional allowance of 80%, providing a total allowance of c.91%. (1.8 x 25% = 45%)
When the EPL was raised to 35% the EPL additional allowance was reduced to 29% to maintain the total allowance at c.91%. (1.29 x 35% = 45.15%)
Incidentally, this highlights the ambiguity of the political debate on removal of EPL allowances and the increase in the EPL rate to 38%.
There can be little doubt that the complete removal of the EPL allowance would make any new investment in the North Sea difficult to justify, but there is room for Labour to claim political capital out of removing the ‘addition’ EPL allowance – sometimes referred to as the super deduction – while still providing a case for North Sea investment.
If full first year capital relief was allowed against the EPL at the new rate of 38%, then this would align with the capital relief applied to the rest of UK business.
With the removal of the additional component of the EPL allowance – super deduction - the total tax relief at an effective tax rate of 78% would be (46.25% + 38%) = 84.25% (78% first year capital relief, plus the 6.25% relief on production).
I sensed the Ithaca chairman sees this as a possible outcome – a Norway solution.
I also listened to Ithaca’s presentation a second time. Two points formed in my mind. One, the ENI assets are unleveraged, meaning no associated debt coming across to Ithaca, and whether the assets carried tax losses or not, Ithaca would be able to offset their own tax losses against profit, so in the near term only the EPL charge applies. Two, clearly Delek is familiar with the UK political landscape and would be looking at ways to alleviate the worst-case impact, i.e. the complete removal of allowances associated with the EPL. In which case, only Rockwell would be completed, albeit perhaps with loss of allowance on half the investment, but unlikely to see any further, non-regulatory investment made in the North Sea.
Against normal field decline, ENI adds c. 40K boepd now, Captain adds c.15K bopd from 2025-6, and Rockwell adds c. 15K+ boepd from 2026-27.
The applied tax rate would be 38% until the current CT losses are used. No doubt Delek and ENI will be looking for full dividends along the way, with room to increase
Tamovv, Ref dividends on the figures you gave would mean 16c - 20c a share, a yield of 8 - 10% on the price I paid £1.45. Better then the average FTSE 250. I hold for the dividend or should I try selling and buy back when it dips 1.5% -2% from my sell price in between ex dividend dates
Kind thanks Tamovv
For detailed dividend 2024/25 assumptions please see my conversation with "londoner" on this forum.
At 1,27 GBP ITH market cap is at about 1,6 bUSD. I expect 2024 dividend to be in a 160-200 mUSD range. So for me it seems like they are yielding at least 10% at the moment, with huge additional potential for 2025, because 2024 should mark the bottom for a lot of North Sea O&G companies (HRB, ENQ, etc.).
Londoner,
Appreciate your swift and very comprehensive reply. Very very useful to me!
I will reply to your 2nd part of that post regarding potential strategic considerations behind the ENI UK Deal as per separate post here. I listened to the Q&A section of last weeks conference call several times and some analysts had some question in exactly that direction on got answers with some "management hints"
Many thanks again regarding clarifying on EPL. Just to ensure I got it right, because it differs from German taxation in that regard:
For EPL, it is not allowed to deduct "Standard DD&A" (excluding decom. etc.) from EBITDAX, but 100% of period capex expenes instead? This is why you have used 129% of period capex? I.e. 100% to "replace/substitute" normal DD&A and 29% "allowence" which effectively reduces profit before tax for EPL then.
This means, in a low Capex year, EPL will become an even heavier burden, because EBITDAX is neither lowered by DD&A nor by period Capex spend?
In Germany, for investment allowances, Standard annual DD&A keeps running and allowences add up on top (i.e. the 29% here).
However, your 2023 backwards calculation seems to fit the actual reported figures very well, so seems correct and logical to me.
For 2025 I have adapted your +236m to CFFO. I see additional CFFO resulting from increased production of about 10 kboe/d, so about 220 mUSD for 2025.
Starting from my 2024 EBITDAX assumption, I get to about 630 mUSD for 2024 (excl. working capital movements) at 61 kboe/d (management commented on Captain EOR II ramp-up during a.m. call and I understood between the lines that it could happen faster than as per official guidance). So potential for 190 mUSD dividend. Management really seemed like they care about their dividend capacity (and owner Delek certainly enjoys the ITH payments), so including some lucky working capital reversal from 2023 I wouldn´t be surprised if they aim for 200 mUSD "round dividend" for 2024.
For 2025 CFFO could be 1,0-1,1 bUSD, so 300+ mUSD dividend potential in my opinion. ENI UK effects not included. But having synergies, utilization of ITH tax losses for ENI.UK and the "low ENI.UK CAPEX profile compared to ITH" in mind, the aquisition should be accreditive on a CFFO per share basis for old ITH shareholder.
I am looking forward to getting more data for ENI UK (i.e. production costs per barrel profile) deal soon along the official deal announcement, management seemed very confident to bring the deal over the finishing line inside the 4 weeks period.
AND IT WENT EVEN LOWER .I KNOW we had the divi etc just wondering why . I think because of reduced profits and that would mean less divi
Timing doesn´t look that good anymore this time ;)
Strange...is todays movement based on the RNS stepdown of independent director? Doesn´t seem "too concerning" to me.
EV/FCF 2.25
Hi Tamovv,
Your EBITDAX number is close to mine.
In 2023 the net CFFO of $1,291m included a negative impact from movement in working capital of $210m. What will be the movement in working capital in 2024? Not knowing makes an estimate of CFFO difficult. But assuming a neutral movement in working capital I have a $163m dividend for the financial year 2024.
On your EPL question, let’s go back to the 2023 numbers:
Adjusted EBITDAX $1,723m.
As you say, decom and interest are not deductible before EPL, but other costs are. To keep the calculation simple, I’ll just deduct lease costs $42m and Admin $34m, for a combined $76m.
The investment allowance before EPL is applied is (1.29x(393+97)) =$630m.
Profit subject to EPL is 1723-76-630 = $1,017m.
EPL is 35%x$1,017m = $356m, which is close enough for me to the reported current EPL charge of $333m, and the estimated cash tax payment in 2024 of $345m-$355m.
Applying the EPL calculation to your EBITDAX number for 2024, same again lease and admin, and the higher Capex:
1160-76-(1.29x (365+210)) = $342m subject to EPL.
EPL is 35%x$342 = $120m.
A cash tax reduction due to EPL in 2025 (using my simplified calculations) of $356-$120m = $236m. Potentially adding $70m to the 2024 dividend, for 2025.
I suspect that most North Sea companies, (I’m thinking ITH, HBR & ENQ) will see similar cash flow profiles over the 2023-25 period, i.e. reduced CFFO in 2024 when EPL cash payments are at their highest, with a reversal in 2025. All three companies are also predicting higher production volumes in 2025 versus 2024.
On Ithaca's dividend yield, I find the reference to a $400m dividend payment for 2023 misleading. My interpretation is that only the 2nd and 3rd interim payments apply, i.e. a total of $267m. The 1st interim of £133m was effectively a dividend on 2022.
But my current focus wrt Ithaca is understanding the logic of the combination with ENI and the future impact on dividends. The ENI assets add to cash flow, with little or no ongoing capex. My initial assessment is that this combination supports the dividend alongside new investment in Cambo, Flota and Marigold, assuming Labour's adjustments to the EPL permit the investment. But would an adverse fiscal adjustment hold Ithaca back? I can imaging Labour calling the bluff of North Sea company executives, and winning - at least in the short term, and to a politician that's all that matters.
Hi guys,
as a non UK resident and on top of that not an expert in the field of taxation at all, I am still struggleing to fully model the EPL cash tax burden on ITH from 2024 going forward.
Phasing is more or less clear now since management provided clear guidance on 2024 cash tax charge solely based on 2023 EPL tax burden.
However, can someone explain the investment allowence to me please?
From gov.uk I got "These changes included a rate increase from 25% to 35%, extending the time that the tax applies to 31 March 2028 and reducing the rate of the investment allowance to 29% for all investment expenditure other than in decarbonisation. The reduction in the rate of the investment allowance maintains the overall cumulative cash value of the relief following the rate increase to 35%, reflecting that it will have more value against a higher levy rate. These changes were legislated for in the Finance Act 2023 and took effect from 1 January 2023."
For 2024 my model guides to about 1,16 bUSD EBITDAX and 180 mUSD and 700 mUSD DD&A. Thus, the "taxable profit" for the EPL shall be 1.160 - 700 mUSD = 460 mUSD (financing costs cannot be deducted for EPL). Thereof 35% are roughly 160 mUSD 2024 EPL tax (before investment allowence).
Management guides for 365 mUSD producing asset capex and 210 mUSD Rosebank Capex, all excluding exploration, decommissioning etc. which could not be offset against EPL. So total 2024 producing asset capex suitable for the EPL investment allowence to be approx. 575 mUSD (midpoint guidance). Thereof 29% investment allowence are roughly 166 mUSD (to be deducted from the 160 mUSD 2024 EPL tax charge I estimated above).
Thus, 2024 net EPL payable in 2025 should be (close to) zero, or am I missing / misinterpreting something?
Londoner, (perhaps Stevo if you are reading here as well) please help.
If so, in 2025 we should be experiencing a huge boost in CFFO (after tax) bringing us back close to 400 mUSD dividend (at 30% CFFO)...
Thanks! Interesting.
EV/EBITDA of 1,6 is what we´ve found on in the HBR area of this board as well. However, comparing ITH to HBR, ITH should be valued on a higher EV/EBITDA because of the massive carried forward tax losses shielding against EPL an thus higher capacity for shareholder returns.
So in my opinion EV/FCF 2024-2028+ is the only way to properly value ITH by taking the positive effect of the tax asset into account.
Fix:
"EV" Meaning: Enterprise Value