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Next "..the stock is under-priced and therefore buybacks make nothing but sense here..."
So, you think they are under-priced (possibly) .... Mr Market before Covid / POO war SQZ traded at a high of ~140p, we are sat at just 15% off our all time high. So imo, we are doing extremely well for an AIM company and the strong cash balance is a major factor behind our market strength in these uncertain times, providing a security blanket, that I for one appreciate.
Question, how much cash are you willing to use to buyback shares, what increase in SP would you expect and over what period?
We are likely to see a second wave of Covid, what could that do to the SP / industry ..... Hummmm !!! Let me think. So you payout for share buyback, cancel them and the SP FALLS. We now have less CoH and lower Mcap, would that then make us an easy target for cash rich acquirer.
Buybacks can raise a companies EPS as a temporary fix for a struggling company, but SQZ are not about that, we need cash to grow the business not artificially raise the SP. Remember, buybacks can not be reversed ... you will have to re-issue new equity, probably at a lower SP, causing more shareholder dilution, ending up in a worse situation.
I'm sure our BoD do not sit at home with their feet-up counting the cash ..... they are skilled businessmen/woman, constantly looking to develop the business, buybacks imo are an admittance of failure to come up with alternatives.
The ONLY reasons I could see a buyback being of benefit is if CoH is greater than MCap and you intend to use the shares kept in treasury, not cancel them but to enhance the business at a later date in the form of a share based transaction / acquisition. This is of course if the value of the SP appreciates. Or, you do it to fend off a hostile approach, but then you would want to use debt, not your cash to do that.
You expressed your annoyance about LTIP recently, what do you think would happen to the 'rewards' our board would receive if the SP was higher, but they still got the same number of shares. You can not have it both ways !
Patience, grasshopper .... ACW et al are no doubt on the case... Cash is King, don't waste that valuable bargaining resource on buybacks, that's all I'm saying
atb
Hi Tom - can't disagree that a decent 'buy - back,' where the sp is considerably below intrinsic value, makes sense. However, SQZ has re - affirmed that it's still looking for an attractive acquisition on a 'value' basis, not for production growth, per se and, who knows, management might well be working on such a proposition right now? In which case, the BoD would rightly be weighing up this efficient capital usage v anything else - i.e, if they could pull off another BKR type deal in this buyers' market, that would take some beating in that regard and certainly eclipse the benefits of shrinking the float, as you suggest.
I've been wondering whether PMO's recent attempt to significantly reduce the price of their agreed deal with BP might cause our 5% shareholder to pull out and, perhaps, show it to us instead and why not? Just a thought, that's all - sasa.
Ok, lets start with your first sentence .."Management need to communicate what they planning to do with +£100m of shareholders funds".
How about what they have already communicated ;
1. Payment of maiden dividend
2. Our debt-free balance sheet results from the cautious approach which we took during the past year and gives us a strong position from which to identify new opportunities for value growth as the industry enters a period of transition.
3.Our objectives remain the same and we will continue to seek acquisition opportunities to build upon the solid base we have established but we will do so with risk and shareholder value firmly in mind.
4.Serica is working on a project to bring R3 into production for the first time, with the aim of increasing production and overall recovery from the Rhum reservoir.
Just a few things SQZ have communicated to spend 'our' cash on.
I would add that i think management have done a superb job operationally particularly when using a yardstick of total finding cost per barrel/therm. Rational capital allocation needs to follow. Cancelling shares at these levels makes absolute sense.
Happy to hear you utterly disagree. Management should conduct a share buyback when a) the shares in question are priced significantly below intrinsic value b) the business can sustain and expand its operations with operating cash flow and c) alternative acquisition opportunities are inferior to their own business. Serica meets all three criteria hence my recommendation.
Also "our". Do grow up. You were not elected to run the message board. Its free for shareholders to voice an opinion on proposals that would benefit shareholders. Its a shareholders board. And yes you are correct i am never happy when excess cash builds up in a bank account earning nothing. Excess cash building up in a bank account and not being allocated in a way that provides maximum benefit to current shareholders is unsatisfactory to me as a current shareholder.
I will abstain from responding to "happy bunnies" and "our friend" and other personal remarks on the basis i dont think you get it.
Tom,
So many things I utterly disagree with there ....
You are clearly not a happy bunny, not happy with cash in the bank, not happy with LTIP, not happy with the SP.
Message to board ..... Keep to YOUR plan ! I think our friend TomTom is a little lost in himself.
atb
Management need to communicate what they planning to do with +£100m of shareholders funds. I will writing to investor relations to seek answers. Serica has met the needs of the business and the stock is under-priced and therefore buybacks make nothing but sense here. For continuing shareholders, repurchases only make sense if the shares are bought at a price below intrinsic value. Today, it is highly probable that Serica is priced significantly below its intrinsic value. Gas prices have stabilised and significant blocks of supply of associated gas has been cut off as evidenced by falling rig counts and capex reductions around the world. We have significant 2P reserves priced very very cheaply. If this rule is followed, the remaining shares of Serica will experience an immediate gain in intrinsic value. Using a simple analogy, if there are three equal partners in a business worth £3,000 and one is bought out by the partnership for £900, each of the remaining partners realises an immediate gain of £50. If the exiting partner is paid £1,100, however, the continuing partners each suffer a loss of £50. The same math applies with corporations and their shareholders and in this analogy the exiting partner is losing his shirt in Serica's case. Ergo, the question of whether a repurchase action is value-enhancing or value-destroying for continuing shareholders is entirely purchase-price dependent.
On that basis, just like the Board would consider price when purchasing an outside business, many in the North Sea are not as good as Serica and are more expensive, I urge the Board to evaluate and consider the current price of its own company. Through a significant share repurchase at these levels, the Board can reward long-term shareholders by buying something for far less than what it is worth, which is the best capital allocation policy of all. I do not believe this is a complicated equation. The Board can buy a significantly undervalued business today, which is far superior to dividends, even without listing the tax benefits to shareholders of a share buyback over dividends.