Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Great news from Citi and I think it’s a sensible take on the current situation. I hadn’t given much thought to deferring CAPEX but it makes sense if the business needs to preserve cash.
Also, good to see consumer confidence was up again in May. This is the fourth monthly improvement in a row and shows that consumers are feeling better about spending and their financial positions. Hopefully this flows through to improved revenues numbers in H2.
In my view, this is peak fear right now and I do think the business will achieve their guidance for the second half. If you read the wording carefully, they are being quite cautious and it seems like they’ve made some conservative assumptions with the forecast (continued sales decline, etc). Gross margin is already up c.300bps in March and April (YOY) which shows that the profit optimisation is working.
I still think they will show a P&L loss for the year, but if the business is cashflow positive in H2 the shares will rally strongly.
Some patience required but the risk/reward is compelling at these levels.
Agreed - things can get better and I think they’ve been quite accurate with their guidance recently. At the current share price, the market is pricing in further losses of £390M - which would bring the book value of equity down to match the current market cap.
Unless there’s some kind of economic disaster, I just can’t see that happening given the change initiatives already underway and the confidence in their guidance. Yes, the economy is slowing but the business is focusing on the right areas (profitability and stock efficiency). All of these measures will only make the company better once the economy improves and sales trend upwards again.
Happy with a long term hold at my 433p average, with the next trading update obviously being key. If they miss their guidance then I’ll reassess, but no point in making any rash decisions until then.
Nice reply from IR - thanks for sharing. It’s clear they don’t have immediate plans for a raise. Why dilute when you’re confident of being cash flow positive over the next six months?
Remember they’re already 2.5 months into the second half of the year, so they will have a reasonable idea about how they’re tracking vs forecasts.
Being able to pick this up for a 50% discount to book value is a no brainer for me. Any sign of positive cashflow and this will be back to £10+.
Lock this one away and forget about it for the summer I think.
Likewise - picked up £5k worth at 468p and already thinking about adding a bunch more. Lots of noise floating around but I can't see a raise in the short term - they're forecasting a net cash inflow of £150M in the second half and they had cash on hand of £308M at 28.02.23.
Yes the RCF is drawn to £250M and steps down to £220M in August next year, but that's only £30M that they need to find to meet that target. Plus, you would expect the lenders to extend for a further term if the business is back in profit - so the residual amount can be rolled in need.
Utimately, this is all about whether the business can achieve it's second half guidance and demonstrate the path back to profitability. If they do then the share price will be in for a major re-rate.
Agreed and that's a good idea - I'll send her a note today.
A bit of clarity on the future strategy is all the share really needs. The company has options here and we just need to understand what their proposed investment outlook is (domestic vs international). They will have the balance sheet next year to contemplate various acquisitions, so I wouldn't be suprised if they bolt on an international player to mitigate the WFT.
Exactly and this will definitely bounce back.
At the end of the day, the board and senior management are not going to sit on their hands and just pay 75% in tax. No sane businessperson would ever do that.
They will use every lever possible to reduce their tax bill and I’ve got no doubt that top tier accountants will be hired to assist with this. Also, don’t be surprised if the business looks for a foreign M&A transaction to diversify revenue away from the UK.
The company isn’t dead by any means. They just need to fully understand the levy and find out ways to work with it to mitigate its effects on profits/cashflow - an obvious one being the tax incentives regarding investment in UK assets and net zero initiatives.
Agreed - it won't stay down here for long.
With the initial 25% WFT the SP traded up to 500p, so another 10% should not take it down this far. Massively oversold in my view and I just noticed that the FYE22 figures won't be affected by the higher rate. So the forecasts from the November update still stand (FCF of $2-2.2bn after cash tax but pre-distributions).
Will be interesting to see the full year NPAT figures so the market can finally run some P/E numbers. If they can double their first half profit then I expect EPS of £1.94 - which equates to a P/E of 1.62 at the current share price.
So plenty of upside here for those who are patient.
I'm back in this morning for 4,000 shares at 334p. Have to say I didn't think I would have another crack at HBR sub 350p, but here we are.
I did some quick maths on the impact of the WFT for this financial year which is based on Harbour's November update (https://www.harbourenergy.com/news-and-media/latest-news/2022/trading-update-nov-2022).
Basically, the company was forecasting FCF of $2-2.2bn after $700m of cash tax payments. $400m of this was related to the existing windfall tax - so if you reverse engineer this at 25% and then recalculate the WFT for 35%, then the tax payment will be $560m. This obviously assumes all things are equal.
So it's not a material increase from what was already in place, but clearly the extra two years will add an unwanted cash burden on the business longer term.
Regardless, I'm bullish at my current average and happy with a circa 5.4% dividend yield. Think I'll keep these for the long term as an anchor in the portfolio.
I'm genuinely concerned for Rolls - those results are not pretty and the balance sheet has deteriorated further. You're currently looking at negative equity to the tune of £6.2bn....
The sale of ITP basically gets the company back to where they were 12 months ago and the business just can't seem to turn a profit, even with flying hours starting to get back up there.
Respect to those buying today and I hope you do well - you've got bigger balls than me!!
Agree with you here - particularly around the use of IPO proceeds and the 90p raise. Some real question marks for me now and I think integrity and trust needs to be rebuilt before the share price can move higher. They're obviously full steam ahead in Madagascar but the speciality applications carry significant margin and upside (think the Al-Gr Composite) and these were a key part of the investment thesis for many people.
Definitely a few points that need to be answered.
Strange to me to see the SP down at these levels and I just wonder what the market is pricing in here? Is it because HBR don't have a well defined strategy regarding the energy transition?
When you look at the majors they are all positioning themselves for a green future; however companies like HBR seem to be solely focused on O&G and trying to maximise the last decade or so of north sea extraction.
I think the windfall tax has affected HBR so much because it's stripping profit out of what is arguably one of the last oil booms for the company. Having your earnings capped in goods times and then not cushioned in bad times, doesn't really make for a compelling investment case.
From the last set of financials (Sept-21), the company had £6.4mn cash on hand. Given we are now 9 months down the track, it will be interesting to see how that figure is looking now.
That’s the key unknown variable and perhaps the reason the SP tanked today. It will be interesting to see the FY results to March, just to get a feel for cash burn and required CAPEX to scale up.
I haven't been invested here for a while but I'm surprised to see the share price this low. TGR is quite a simple company to model so I thought I'd run a few numbers to see if the SP is under or overvalued right now.
Let's see assume that the business achieves 30,000 tonnes of capacity by Q4 this year and that they can maintain this level going forward. On that basis you could expect (roughly) the following:
Revenue - 30,000 tonnes * by assume average sale price of $850 = USD 25.5mn (note that average price was $866 during the last quarter)
Gross profit - USD 25.5m * 50% = USD 12.75mn (GP% was 54% at the last set of results)
Operating costs - assumed at USD 3.0mn, which is a bit of a guess but let's go with it.
EBITDA - USD 9.75mn
Tax - USD 1.85mn (yes I've skipped depreciation for the sake of simplicity)
Net Profit - USD 7.89mn
Convert to GBP @ 0.80 = £6.32mn
Then take current shares in issue = 87 million
Divide net profit by shares in issue to get an EPS of 7.26p
Divide current share price (33.5p) by EPS gives a forward P/E of 4.6x - which is pretty low in any industry (let alone a growing one)
So overall I believe this is undervalued and a buy at these levels. The key thing to understand is the capital cost of building up to 30,000 tonnes and whether or not a new raise is required to fund this. The workings also don't assume any value from the specialty products at TSG.
Good luck to all holders - the market is a minefield at the moment and I don't think many investors are getting out unscathed. TGR seems like a good bet though, particularly amongst the micro/small caps.
I'm not invested at the moment but always watching with interest as to developments here. A couple of questions have been on my mind lately around this Disko demerger and the long overdue Dundas funding.
The main one really is - do the management team have any interest in managing this company long term? Or is their whole purpose to find a big deposit and sell out?
The length of time it has taken to get Dundas over the line has been painful to watch, and it makes you wonder if they want the project to get underway at all.
I guess it's a key question with many pre-revenue companies on AIM - can the management team actually run the companies that they are promising to build and what will be their capabilities in such a scenario?
The current management team doesn't exactly fill me with confidence, but there's definitely money to be made here if Disko goes well and the SPV is sold to a bigger multinational. Remember that KoBold don't want to mine the site either, so it feels to me that a sale is definitely the current strategy.
It's been a tough few trading sessions for HBR and I'm not sure if the bottom is in yet. Fundamentally, I think many investors will find it difficult to invest here when profits are taxed at 65%...
I know there's quite a bit of nuance in that figure and the effective tax rate will likely be lower (given PMO's tax losses carried forward, north sea CAPEX spend, etc); however it just doesn't look good and will be putting many people off.
Essentially, it means that HBR will have lower growth prospects for the next few years and this is being reflected in the current share price.
I sold out in the 470's after learning of GIC's sell down. But good luck to those still in and I'm sure it will turn around in due course. It just might take some time now given the aggressive tax environment.
Agreed - it definitely helps you sleep at night when HBR are printing money and have a relatively low valuation. Expecting some serious uplift in the SP but it will take time.
Most fund managers are holding their breath for US CPI data which is out at 1:30pm. The market is expecting 8.1%, so it will be interesting to see how it comes in.
Solid update as I thought. $600m of debt paid off in three months is more than all of last year, so I wasn’t far off. No exact FCF numbers but people can do the maths. It was a very good three months.
There’s quite a bit of upside here if commodity prices stay high.
Also interesting to note the capital reduction which will shift about $6bn from share premium and merger reserves to retained earnings. This means those funds can be used for share buybacks and dividends going forward, where as currently they can’t.