Member Info for AceofClubs

DEC is using ABS (Asset Backed Securitisation) and RBL (Reserve Backed Lending) to finance its business. The RBL is like an overdraft facility and subject to semi-annual review. Wether the ABS tranches are non-recourse I do not know; but DEC wouldn't have much of a business if it lost its seuritised assets!

The key point between us is does DEC have gas in the tank for more asset acquisitions? You are very confident, I am far less so. I also question if DEC would want to make another move right now, given the macro outlook and rising interest rates. There may be some irresistable bargains arise but they look stretched enough already for my taste.

A "Weak Buy" for me but I am not adding.

AceOfClubs

"Reserve-Based Lending (RBL) is a type of financing for independent exploration and production companies. RBL is a “borrowing-base” type of loan sized on the basis of the projected Net Present Value (NPV) of cash flows generated by the underlying oil & gas assets."

Any borrowing on this type of facility sits firmly on the balance sheet - but as you say, this is what makes a market.

AceOfClubs

"Rusty is looking to build a multi billion market cap monster which will be in a dominant position as US nat gas production declines over the next decade and prices rise."

The US is a series of regional markets for NG production as there is no national distribution network and there never will be. Recently the price for NG in California was 4 times that achievable in Appalacia. The dominant operator in Appalacia, DEC's largest market, is EQT Corporation, market cap $14.3B, DEC market cap $1.05B.

With its current equity/debt structure DEC appears to me to have run out of gas (pun intended) for any further asset purchases at scale.

Running hard to stand still.

AceOfClubs

Entain to buy Polish betting operator STS Holdings for $946m in association with EMMA Capital.

Equity placing & possible public offer coming up.

Ace Of Clubs

"U.S. natural gas futures (NG1:COM) continued their slide, with the new front-month July contract closing -3.7% to $2.327/MMBtu following last week's loss of 16%, on record production and forecasts for milder weather and lower demand over the next two weeks.

Data provider Refinitiv reported average gas production in the U.S. Lower 48 states rose to 101.7B cf/day so far in May, which would top April's monthly record of 101.4b cf/day."

It takes some hard grit to be buying into US gas producers against this continuing news background. But the first part of the investment thesis is "buy low" - if you are buying into the right company.

At the moment my two other O&G investments - Shell & Crescent Point Energy, are also motoring in reverse.

It's a tricky one - must be tempting those with no current holding, cash, nerves and patience.

AceOfClubs

Hello unvrkw,

To state that the CFO has the best informed view of his company's finances may be a statement of the "bleedin' obvious" but it applies to all companies and does not constitute a conspiracy theory!

I do have no idea why the finance guy is selling but his pattern of behaviour in that respect, over an extended period, is in the public domain. Once again, these are facts that do not consitute a conspiracy theory.

Using DEC's cash to purchase 100,000 shares is, because of its low magnitude, a meaningless gesture in my opinion.

A statement from the company saying "the directors are unaware of any explanation for the recent share price weakness and reafirm the financial guidance for 2023" would probably have delivered more value for money for us shareholders.

AceOfClubs

Lots more fun tomorrow!

Bradley Grafton Gray (Chief Financial Officer) has been a heavy and consistent seller of DEC equity to the tune of 1,991,667 shares since May 2021 I calculate, his last tranche of 250,000 only a couple of weeks ago.

For all our head scratching and pontificating, if anybody knows what is really happening with the DEC finances it is (or should be); Mr Gray.

AceOfClubs

RNS: 15 May

Entain plc (LSE: ENT), the global sports betting, gaming and interactive entertainment group, announces that, after 18 years with the Group, Robert Hoskin is stepping down as Chief Governance Officer. He will leave the Board on June 30 and remain in role with the Group until 31 August 2023.

Robert has been with the Group since 2005, originally serving as Company Secretary and Group Director of Legal, Regulatory and Secretariat, before being promoted to his current role in October 2020, and joining the Board in 2021. The Group has taken the decision to restructure certain responsibilities, in particular Regulatory Affairs given the strategic importance of regulation and our focus exclusively on regulated or regulating markets.

With the never ending series of "compliance" or rather "non-compliance" issues regularly arising Robert Hoskin should have been dispensed with years ago - not up to the job. The whole of the Compliance Board Committee are culpable. The giveaway of Entain's Turkish operations to a Maltese entity had a stench to it at the time. Entain is gaining for itself an unenviable reputation and only the BetMGM connection is keeping the share price afloat.

Better management needed if this company is to fulfil its potential.

AceOfClubs

Trotsky,

Agreed on the inability to fund acquistions at scale entirely from cash flow. The point I am trying to make is that have they reached a debt/equity ceiling - so no more acquisitions? End of business model?

Capping liabilities - who knows? I do think their $20,000 per well assumption is hopelessly optimistic. Well capping - there are a lot of companies already at it on a scale and geographic coverage DEC can only dream about - Baker Hughes & Haliburton to name only two.

Strange happenings indeed with the SP.

AceOfClubs

Trotsky:

Shorting a share with a 15%+ dividend, paid quarterly, is a very expensive operation and DEC is quite tightly held; I calculate the top 10 shareholders have 38% of the equity.

The capping liabilities may be optimistically calculated but they will only become financially painful 5-10 years down the line and I don't think the market looks that far ahead - more like 18-24 months.

To get where it is today DEC has consistently had to invest (via acquisitions) considerably more than its operational cash flow. It may have reached a ceiling on both debt and equity raises. Perhaps Rusty is looking for a merger?

Whether Rusty's 50-year financial glide path to Nirvana is realistic is highly questionable. He does appear to have committed to some substantial debt repayments over the next 5+ years which should improve sentiment, if it happens.

Meanwhile, at these prices, it must be happy days for true believers, so it's not all bad news.

AceOfClubs

Always useful to read alternative and additional views Trotsky. I don't pretend to know all of the answers or sometimes any of them. DEC is an enigma. I have sometimes bet gainst the market view but usually have lost. Clearly backing the wrong horses.

I have removed the values of asset and liabilities connected to derivatives from my Current Asset and Current Liability calculations. It is not just the absolute numbers that concern me but the magnitude and direction of travel between 2021 and 2022. All this against a background of blowout product prices in 2022.

I do still think with DEC it is all about cash flow and that depends upon two things: product production, which we know will decline every year and product pricing.

When looking at DEC presentations their assumptions are always unjustifiably optimistic and contradicted a few months later in a new "Investor Presentation".

The February '23 presentation was based on an 8.5% annual production decline rate (Pg.15).

The May '23 presentation "assumes" a 4.5% annual production decline rate. (Pg.26)

The difference this would make to cash flow is immense over a 5 year projection, let alone the 50 years it is used for!

The May '23 presentation also assumes a 10 year Nymex NG price strip at $4.66 MMBtu. When has DEC ever achieved $4 in a single year? With their disclosed hedge prices and the current spot and forward prices it certainly won't be in 2023 or 2024. The difference between achieving $4.66 and the $3.79, 2023, $3.30, 2024, currently disclosed in P.17 will again make a huge difference to cash flow as it is all pre-tax cash profit.

Some have viewed the participation of 14 banks in the $375M RCF as a positive sign. Keybanc was the bookrunner for this, but on average each bank only wanted a $26.8M slice of this pie - chump change to a bank - and Keybanc probably had to take a bigger than average slice to generate interest.

The repeated use of the "Smarter Asset Management" catchphrase also discomforts me. It infers that all previous managers of assets acquired by DEC were practicising "Dumb", or "Not Very Smart", Asset Management. Maybe they were, maybe not.

With a £1.06 average cost I am holding on to see how this develops. I think the dividend is safe for 2023 and probably 2024. I can't see beyond that so await developments!

DEC cannot be categorised as boring, even if it does give me a few headaches.

AceOfClubs

It's difficult to understand the DEC share price. I can't pretend to understand the share price of many companies - I have to revert to "market expectations".

So what are the market expectations for DEC? The share price indicates the market has no faith that the current level of returns to shareholders is sustainable. Why so?

The Balance Sheet and Income Statement are heavily distorted with a mish mash of derivative contracts that could turn out to be very costly or valuable depending upon future prices of NG & oil and movements in interest rates.

I find the most undistorted information in the Cash Flow Statement.

Using the combined cashflows from 2021 & 2022 I find positive Operational Cash Flow totalled $707,946, Cash Used in Investing $1,014,169. Cash outflow for debt interest, debt repayment, shareholder dividends et.al. is all additional.

Extracting the values on derivative liabilities and assets in the Balance Sheet gives a figure of $326,483 for Current Assets and $837,790 for Current Liabilities at 31/12/22.

Between 2022 and 2021 comparatives, Current Assets declined 3%, Current Liabilities increased by 60%.

DEC is buying assets every year so the goal posts are constantly moving. They appear well insulated through 2023 from the current NG spot price, in 2024 have still sold forward, but at a lower price.

Cash will be the constraint on DEC and the market has no expectation the dividend is sustainable.

AceOfClubs

All Figures $000's.

I think the depressed share price is industry wide because the depression in equities has caused the amateur traders to quit. TCAP didn't help itself by grossly overpaying for the no growth business that is Liquidnet. TCAP has historically done well when interest rates have been on the move and they certainly have lately in EU, UK & US. Perhaps sacking all those well paid bond dealers wasn't such a good move after all?

IGG overpaid for another American lemon in tastytrade. PLUS made much cheaper and more successful entries into the US & Japanese markets but that hasn't saved its share price either.

TCAP needs rising equity markets to tempt the punters back in. If it has lost its position in fixed interest that could be permanent damage.

Another in the "too cheap to sell category" and I have a basket load of those!

AceofClubs

Irony, gulfharbour, irony.

AceofClubs

I think Cevian were just being gentlemen, but actions speak louder than words.

May 24 (Reuters) - Activist investor Cevian Capital has sold down its entire stake in British insurer Aviva, ending its campaign to drive up investor payouts at the FSTE 100 company.

Cevian said in a statement that Amanda Blanc and her management team had done an "excellent job" in improving the company's fortunes, despite mixed quarterly trading figures

on Wednesday that sent its shares down 5%.

Aviva has paid out more than 5 billion pounds to investors since 2021, when Cevian first revealed its stake in the company.

"Over the last few years, Aviva has transformed from a poorly-performing conglomerate to a focused and well-performing insurance company," said Niko Pakalén, partner at Cevian Capital.

"Aviva has produced strong shareholder returns, including substantial distributions of excess capital... Aviva is now well positioned for continued success, which is not reflected in today's share price."

A Cevian spokesperson said the firm had entirely exited its position in Aviva, which had stood at more than 150 million shares at its peak last October.

Yes, they sold because: "Aviva is now well positioned for continued success, which is not reflected in today's share price."

AceOfClubs

Do you remember the Cevian £8 share forecast?

"A spokesperson for Aviva (AV.L) on Wednesday said Cevian Capital holds roughly 60,000 shares of the insurer, compared with the peak 150 million shares it had in late 2022, according to a same-day report by Reuters.

The Sweden-based activist hedge fund had acquired a 5% stake in the UK-based insurance provider in 2021 and called for higher investor payouts."

Plodding along.

AceOfClubs

JiffyBag,

Trading commodity contracts is no different to trading shares, you can be long or short and you never have to supply or take delivery of any product; you can sell your position back into the market at any time short of maturity. If the spot price is higher than the hedged price at maturity then DEC will be the loser, and vice versa.

Trading is a completely different "industry" to exploration and production in my opinion. Fortunes are made and lost and some of the biggest and most successful traders have no producing assets at all. DEC have a less than stellar record with their hedges which are basically mandated by their bondholders, in the interests of their bondholders, not those of shareholders. P.184 of the DEC 2022 accounts explains that their commodity hedges reduced revenue by $895.802,000 in 2022 and $320,656,000 in 2021.

Shell has a very large and usually highly profitable trading arm. Here is another large trader I have some knowledge of: https://www.mercuria.com/our-activities/trading - It is an activity best left to the very well funded and informed - DEC appears to have no discretion other than to sell forward, at any price, to cover debt repayment and interest liabilities.

AceOfClubs

"U.S. natural gas futures (NG1:COM) ended sharply higher for the week, +14.1% to $2.585/MMBtu, with analysts attributing the spike to a smaller than forecast increase in U.S. inventory and signs of a slowdown in domestic production."

AceOfClubs

Leapgrog,
I don't know where you get your data from but it could explain your "fair value" DCF valuation of £24.59!
"has never reduced its divi instead growing it at 6.44% average annual over 5-yrs" The dividend was 43.2p for 4 years (2018-2021) and raised a derisory 1p in 2022 to 44.2p, a CAGR of less than 1%. I can't be bothered to check your 10 year divi CAGR, but it won't be 7%.
"Debt to equity if 15%." IGG has no debt to equity ratio because it has a net cash position.
Highest analyst price is £12.50, lowest £6.67 - who is more accurate?
Analyst forecast net income to fall to £382M in 2023 from £504M in 2022.
The share price reflects the business, drifting ruderless.
AceOfClubs

One for the bulls:
https://seekingalpha.com/article/4595972-natural-gas-demand-to-soar-result-of-green-revolution
Be aware this guy throws an enormous number of darts on an almost daily basis - only sometimes does he hit the board.
AceofClubs