One thing that I do not understand is the distinction between their two statements:
'13 Royalty Partners' vs 'exposure to 48 underlying operating companies'
They list the portfolio breakdown by sector (13 again):
Industrials - 5
Business Services - 4
Healthcare - 3
I.T. services - 1
But I don't see any mention of the portfolio weight breakdown, i.e. what is the biggest single exposure?
@baf3: thanks for the detailed info. Maybe I'm looking at the wrong thing, but on their website, they say they have '13 Royalty Partners'. I'll dig into the portfolio more.
I guess my first observation here is that this is a very concentrated portfolio. All you'd need is 1 or 2 of the companies to have problems and the share price is going to take a massive hit? i.e. the 'royalty' would become worthlesss?
The yield is very attractive, but in the current market, you can get similar from Legal & General and 10% from M&G, which are both FTSE 100, while DUKE is an AIM company... The risk here looks closer to one of the high yield bond funds (e.g. TwentyFour or BlackStone), but those are super diversified and offer a similar or higher dividend, so I don't see anything compelling here.
I'm happy to be proven wrong, because I've only done rudimentay research.
@Carcosa61: I agree with the sentiment of what you're saying. But your conclusions should be obvious from the 8% yield on offer... If you're looking for a very low risk investment, the yield will be around 3-4%. If you're prepared to take on higher risk, you'll achieve a higher yield. It's all about risk/reward. I'm not yet decided whether or not to invest here myself, because there are other, more diversified and higher yielding trusts....
"The problem oil companies are currently facing..." is that windfall taxes are popping up like moles and it's impossible to whack them... The UK has effectively nationalised oil companies. Europe has followed and some people believe that Canada will as well.
I wish people here would cease saying things like 'this is sure to go up tomorrow', 'if only we had a slightly bigger dividend we'd sky rocket', 'we are so cheap compared to peers', etc. which will change absolutely nothing. If you had shares in Petrobras and were receiving 40% yield, but still on a forward PER of 2, you'd know what I mean.
@LucyDS - you're funny and very predictable... in the meanwhile I pickup close to 10% yield for doing absolutely nothing. Send it down lower if you want, so I can pickup more!
@Banburyboy: "Anyone know why the government favoured a North Sea only tax ( EPL) over an increase to the corporation tax and supplementary (40%) ?"
This my understanding.
There are double taxation treaties, meaning they cannot tax them twice. e.g. There is currently no way to tax them (Shell, BP, etc) on profits from another country, such as the USA, without having the international tax system fall apart.
If what Bloomberg is saying is correct, Shell has just announced that it is selling several North Sea licences. I expect they want to keep the strategy tight-lipped so as not to depress the price of those assets too much. On the other hand, they need to urgently send a very clear message:
https://www.bloomberg.com/news/articles/2022-11-25/shell-said-to-be-selling-stakes-in-uk-north-sea-oil-fields
This will hopefully send a very strong message that the WFT urgently needs to be revised or investors WILL disappear and this broken government will be paying even higher energy prices from US oil/gas imports. Let's hope that others follow. I do not support HBR spending another penny on future UK developments while the tax is 75%.
However thorough the analysis, almost everything rests on the WTI price and that is looking like it could be heading towards $70, if it breaks below $76.20. Hopefully OPEC will cut production further to prevent this idiocy.
"What would be the percentage of FCF after a 10% drop in oil/gas and everything else unchanged?"
I didn't see an answer... So if it's already 52%, then I guess (finger in air) we could be looking at 60+% of FCF after a 10% drop in oil? That sounds unsustainable.
Talking about a re-rate in the current environment is pure fantasy.
17 Nov 2022: Make an announcement that you're increasing the dividend to 8.10%, causig a share price rise
22 Nov 2022: Announce the winding down of the company
I wonder if management sold their own shares?
Regarding your comment (4): 'Current dividend as a percentage of Decembers FCF is about 52% i.e they are currently paying substantially above the 30% of FCF as i3e define FCF with their current Capex Spend.'
What would be the percentage of FCF after a 10% drop in oil/gas and everything else unchanged?
@plumbs: "Just wondering why this is not trading at a higher share price?"
Have you looked at energy company share prices lately? Lots of UK/US/Canadian energy stocks are being smashed. The argument about how 'cheap' I3E is not holding water.
FYI: I'm holding here. Not trying to be negative, but trying to be realisitc. You'd be suffering even more if you were holding Vermilion, Pipestone, Harbour, Serica,... Being 'cheap' is rarely ever a reason for a share price to increase.
'Oil dropping like a stone'
It's due to the US making MBS immune from prosecution over Khashoggi last week. Saudia Arabia/OPEC are now returning to the favour to the US... Politics!
Oil could be in a for a rough ride. But who knows! In the short-term, this share and many other energy shares are heavily influenced by the oil price, despite what the actual production breakdown is. There's also the possibility of Canada introducing a windfall tax, following the growing chorus of these lately.
Has anybody done any calcs to see what the dividend cover would be for WTI at $75, $70, or $60?
I vaguely remember the company had done some hedging to protect the dividend? I'm not suggesting there will be any cut, but clearly there will be a point at which the dividend could become unsustainable if WTI drops heavily in a recession.
Changing HBR from a UK to foreign company would have no impact whatsoever on the tax situation for profits earned in the North Sea. The tax is nothing to do with being a UK company. It's a tax on any company that makes a profit from its NS operations. BP and Shell have limited operations in the NS, hence they won't be paying any tax. From memory, the figure for Shell is zero...
Investors are fleeing. That's what's going on. There is just no way that US investors will buy this now; they'd rather invest in a safe jurisdiction such as Peru, Nigeria, Indonesia, Iraq, etc. where companies don't pay 75% tax.