@Dartron: "Does it matter Its only a statistic."
Yes, it does matter if you make a false claim, without checking it, because somebody might actually believe it!
Just to repeat. There is no truth whatsoever that Knights are anywhere remotely like the biggest UK law firm. Have you heard of Clifford Chance, Allen & Overy, Linklaters,..... They are in a totally different league to these tiny AIM-listed law firms.
@Dartron: regarding your comment that Knights is "Currently the largest UK law firm."
That is not even remotely correct. If you look up the league tables, Knights Group is the 62'nd largest UK law firm by revenue. i.e. they are a *tiny* firm compared to any of the big City law firms. They are an AIM-listed company.
@EdwardSeaton: "These endless tiny transactions are nothing to do with 'city folks', Beza."
You sure? Several platforms break up a big sale into seemingly random, small chunks, based on the current volume. e.g. Interactive Brokers does this. It's common. Makes it look like there are lots of small PIs selling, but it's not always the case.
"Thanks Canetoad, fascinating that US investors aren't interested in high div returns (10%) whilst there's high demand for US bonds offering half the return..."
Berkshire Hathaway pays no dividend but has achieved a 20% compounded return for many decades. The attraction of DEC is a high dividend, but it's a mirage, because it's using dilution to achieve it. Have a look at the share count and the book value per share over the past 5y.
Then there's the issue with future hedges being at very low gas prices which might be uneconomic, meaning that the dividend could dry up completely in the future. Yes, DEC will be OK for the next year, but the valuation depends on not just this year and with current gas prices, it's hard to see where the dividend will come from.
@Clued: "Canetoad, why do US investors hate small-cap oil/gas shares ? If sp falls to 90p and div is maintained because profitability doesn't fall, we're looking at a 15% Div...!!"
Who knows? It is what it is. You need to appreciate that there are LOTS of US stocks yielding 10% pa, which have been consistent with their dividends for many years, but even they are not vey popular. Few US investors are interested in companies paying big dividends. And fossil fuel companies are about as popular as tobacco companies. If huge dividends were all it took to bring in investors, then companies like TGA would be sky-rocketing.
I had another look at the balance sheet this morning + the recent performance of other listed law firms. I found the following:
- Net Debt is less than I thought @£35.6m, with headroom of £24.4m in £60m RCF. The higher Net Gearing figure of 94.3% in Stockopedia is due to lease liabilities (IFRS accounting). So Net Gearing is not too bad pre-IFRS.
- I looked at peers: MANO, BEG, BUR, GTLY, KEYS, NAHL, KGH, DWF, INCE as a group. With the exception of KEYS, the share prices of all are performing poorly, deteriorating significantly relative to the All Share since mid January. i.e. it's a bad time to for the shares of listed law firms.
Has KGH bottomed? Who knows, but unless I see Director buying, I'll continue to wait until the sector as a whole improves.
In terms of fundamentals, the red flag is the Net Gearing, which is 94.30% (e.g. in Stockopedia). That is high. But overall, I think it's a reasonable stock at an unusually low valuation and a CEO with very deep pockets who has bought and sold large blocks of shares in the past, the last such purchase being @83.9p and his last big sale being @390p. That's interesting!
de-ramper? - year right... I have a long position here. I'll add more once the freefall drops.
Ince is relevant here, because it's a listed law firm with a nearly identical strategy. It's quite possible that there are small-time shorters of KGH, as there were for INCE, but that's a dangerous game and there's zero evidence of it happening here. There's not a single short position big enough to declare - so the simplest explanation is that there are none...
All it would need is for DB to start buying an you'd be toast. You guys need to do some homework before trying to 'educate' the rest of us about KGH...
@Dartron: "This story about selling an audio company to a Swedish buyer demonstrates that the model is valid..."
I don't think it does. The only thing that's important is how much of the revenue is being translated into profit and how the debt pile is being managed. It does look as though Knights are falling into the same trap that Ince found itself in.
(obvious correction: £70.875m)
From a few days ago:
"On 1 December 2022, it agreed a $70.875m senior secured guaranteed note with an institutional investor. The facility comes with a 5.69% fixed coupon and is due in February 2028. The transaction is expected to close in mid-February 2023, subject to certain conditions. The company intends to utilise the facility to redeem the existing Lloyds Bank loan, as well as providing additional liquidity."
I could be mistaken, but that looks to be exactly what they have said/done today.
@Baoxiou: have a look at page 20 of the Quoted Data paper from a few days ago. Unless I am mistaken, the new facility is 5.69%. From what I gather, this facility is not from a bank.
@Baoxiou: "This means they are drawing down debt to fund a dividend - doesn't sound healthy."
NO... All REITs have to return 90% of the cashflow so there's limited chance to pay down debt; instead, they roll the debt over and/or eventually issue more shares. That's not a bad thing when inflation is reducing the debt by 10% a year. Nothin unusual. What it means is that the risk of not being able to roll the dbt is gone. This is as expected. If you were expectign the debt to be paid down, don't invest in a REIT!
I see no significant (declared) short positions; perhaps it could still be manipulated, given how low the volume is, but I think it's more likely a large holder offloading their shares. It reminds me of Ince, where the selling took many months.
@Yuri: You could be right, but I don't think it's that grim. It's difficult to argue that a forward pe of 2.9x is super expensive. I do share your concerns about the debt situation though. But the CEO has a history of making major purchases here. I'm sitting on the sideline with a tiny position, but will dip my toe in if/when I see any evidence of the freefall slowing down.
The facts are nothing but good here lately and in view of that I'm adding. Investment grade rating reaffirmed + the recent 2 RNS reduce a lot of risk here.
I'm undecided if the deal is good or bad as I don't have a crystal ball. If it uses a lot of our cash, buying an asset that nobody except people HERE value highly, then it worries me it's a bad deal. Coal could easily drop significantly from here and any arguments about net cash would evaporate. What if coal drops to $50-$75?