Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Yes I agree that BATS would have been a terrible investment at previous SP levels, especially if you'd bought in the 2017 spike. The pound has strengthened since then and ESG investing has risen exponentially which has hurt BATS as it's now shunned by those types of funds and many big pension funds.
It all looks terrible until you look at the underlying profitability and dividend history. BATS continues to grind out higher and higher profits, and the dividend has slowly been rising every year. I can't recall looking at any other company with such a robust dividend history. Both of those trends seem to set to continue looking at the last set of results, with new product lines slowly replacing the decline in tobacco use, and revenue on a constant currency basis increasing around 5% pa.
Yes there are further currency risks if the pound strengthens any further back to pre referendum levels, and there's always the legislative risk, but BATS seem to be doing something about the latter making progress on new product lines.
I've traded a few positions in BATS and also kept a core holding for the dividends. We could very well sink further to 2600 or even 2500, and continue to trade in the current range up to 2850/2900, never achieving the 3000+ broker targets.
All I know is that at the moment the dividend is pretty safe. I'll keep taking the money and when funds become available I'll keep adding at these levels. With an 8% yield and a relatively stable SP I don't mind using a bit of leverage on this one, reinvest the dividends and as long they can maintain the dividend then that's going to make a very boring share very profitable for me without too much effort or drama.
Nice one mesh - only read your post after I'd posted mine and don't feel so bad about my mini rant now! All of your points are spot on though. The difference in returns between equities and interest rates are at ridiculous levels we've never seen before and are lining the pockets of those holding real assets whilst robbing those who are in cash. Traditionally it's been the rich who invest in assets whilst the working class stay in cash, so it's an enormous and massively regressive wealth transference
Ideally we want them to come in at or just above the 870k forecast. Any lower and the markets start getting worried about a slowdown in the recovery, and any higher and they start worrying about inflation, or rather the tapering of bond purchases and bringing forward of interest rate rises that are normally used to combat rising inflation.
I wonder when the markets will wake up to the reality that the only way out for the US and other heavily indebted developed economies is for a prolonged period where inflation is higher than interest rates? We had a taster of the money printing Bonanza in 2009, but that was just a starter for the main course we are having now. Countries can't afford to pay back the debt, the only thing they can do is commit stealth default and inflate the debt away as nominal numbers increase, but debt as a % of GDP decreases.
This has been going on for 12 years now. Those with cash savings are the ones effectively paying back the debt as they've seen the real value of their money decrease by 25% + over the last year 12 years. It's bonkers when you look back over the previous 12 years when they would have seen the real value increase by 65%!
I sometimes wonder whether all of these analysts / market commentators etc are all really that stupid they can't see what's going on , or whether they are all part of the same elaborate scam!
Anyway, apologies for the O/T rant - I'm having one of those days! :)
Just read (or at least tried to) every one of your posts Taj - sheer comedy gold!! I've been chuckling to myself for the last 15 mins! It's been a welcome relief to my COVID induced daze - come back and cheer me up some more! :)
The spanner I was referring to is the green transition, and before anyone says anything I accept that it's probably inevitable. Some of the oil majors like Exxon/Chevron who are focusing purely on fossil fuels are back at pre COVID SPs, and yes they could come a croper in the long run if the markets think their product/business is no longer viable
Not yet by the looks of it. Nice to see the upward revisions, but still a big difference in the price targets. Still mixed views/uncertainty out there about how BP will manage the green transition. Without that spanner in the works on yesterdays numbers we'd probably be back to pre COVID SP levels by now.
They've started coming through this morning....
UBS RAISES BP PRICE TARGET TO 410 (380) PENCE - 'BUY'
BERENBERG RAISES BP PRICE TARGET TO 310 (285) PENCE - 'HOLD'
DEUTSCHE BANK RAISES BP PRICE TARGET TO 313 (294) PENCE - 'HOLD'
RBC RAISES BP PRICE TARGET TO 390 (350) PENCE - 'SECTOR PERFORM'
Well this should be interesting to watch. The last set of buy backs were for $500m had a limit price of 310. Before the started we were trading in a 290-310 range, but as soon as the buybacks started that went up to 300-320 with the buybacks occurring every day the price went below 310. The buys were well managed and didn't push up the SP but did create a nice floor at 300p. It took a month to complete and it wasn't long after they finished that the SP went north of 320.
It will be interesting to see what happens this time round, especially seeing as they need to buy almost 3 times the amount and need to complete the buybacks in 3 months. I wonder if they will have the same limit of 310 and will try to buy them all on any weakness? It's a fair amount of shares to purchase in such a short time though, especially if all of the other oil majors SP start heading back to where they were a month ago (although RDSB is already there).
Having said that, the markets are looking a bit twitchy and Brent looks like it trying to decide whether to continue the short term downtrend that started in July, or revert back to the longer uptrend.
When I cash out of BP I will add the money to my trading capital, so I haven't got any specific investments in mind. I maintain a watchlist mainly of FTSE 100 shares, indexes and commodities and look for short term trading opportunities. On the last dip a few weeks back I only bought a very small amount of BP, but took positions in a few others and banked some nice profit.
That kind of trading can bring better returns than the long hold of a single share is arguably less risky as you keep banking your profits all the time. I certainly wouldn't want to hold a sizeable amount of any one share for a long time as there's just too much risk. On top of the macro economic risk (ie all markets falling), there is also sector specific risk (ie oil companies out of favour) and specific company risk (ie Looney not being able to pull off green transition or another GOM/Black Swan event).
I don't trade with my pension, I invest that money in a portfolio of funds -(mainly global funds and smaller companies as I won't be touching that money for 15-20 years) and that's something I monitor on a monthly basis and thoroughly review once a year. A buy and hold strategy there isn't so risky as my typical exposure to any one share is less 1% and never more than 3%, and it balances out the risks with my trading capital.
Funnily enough I was looking at similar comparisons. Exxon reported Q2 earnings of $1.10 EPS which was a huge increase on Q1 of $0.64. Even if we annualise the last results to give an EPS of $4.40, that still means they are trading on a PE of around x 13.18.
If you apply that PE to BP's EPS of 9.28p ($0.13 at 1.40 GBP/USD) or 37.12p per year x 13.18 = 489p a share.
At that level the current 10%pa BP return (div and buybacks) reduces to around 6.13%, and Exxon's current dividend yield is 6% so the numbers would be the same.
It really is a massive discount, although tbh I don't see the SP getting anywhere close to 500p in the near future. Nearly all of BPs current revenue comes from fossil fuels and they are going to cut that back by 40% and we haven't seen any tangible results that the renewables that will replace it will produce the same numbers, hence why we are trading at such a discount.
Not wanting to stir the divv buy back pot too much, I also think yield might hold the SP back as I can't see this being too attractive at sub 4% yield (even though RDSB was briefly at around 3.4%), which would cap the SP to around 390p.
I think the results underpin the current SP, and I'm still relatively confident that we'll close the gap at 395p at some point in the next 12 months but I don't think there will be much upside past that until BP can prove, or rather the markets believe, that BP can continue generating it's current EPS and cashflow once it sells off it fossil fuel assets and replaces them with renewables.
If Looney can pull it off in the next 5 years or so and get re-rated as an energy company, then you could be looking at a x20 PE ratio with 4% yields, which at todays EPS would give an SP of around 740p.
Personally I'd rather a 33% gain in the next 6-12 months and put my money to work elsewhere rather than waiting 5 years plus for a potential 145% gain.
It's because they issue new shares as well as buy back shares. They used to offer a scrip dividend where you received extra shares instead of cash for your dividend - those were all new shares that were issued. The last buyback of $500m was only to offset the dilution caused by issuing $500m of new shares in the employee share scheme. This buyback of $1.4bn though isn't to offset anything and will actually reduce the shares in circulation which in turn will increase the EPS.
No it wasn't evenly done. If you look back at previous RNS in Apr/May you can see when and how much they bought as a company has to give details via an RNS when they purchase their own shares. From memory they had a max price of 310, so on days the SP was above that there were no transactions, but lots more on down days.
Yes of course you are right, assets can go down in value. With O&G companies the bulk of their assets have a limited lifespan and usually depreciate in value as more oil comes out of the ground (so maybe my house example wasn't the best one, but I was trying to keep it simple). That's dealt with in the depreciation section of the accounts, supplemented by write downs / write ups when there are material changes that significantly effect the market value of the assets.
Looking at non current liabilities in isolation in a capital intensive company can be very misleading though as debt is essential for the long term viability of the company. Low levels of debt could actually be a bad thing if it deprives the company of the working capital necessary to make the long term investments which are necessary to replace the current income streams they are receiving from limited life span assets, otherwise the company would be reducing in size and profitability.
I'd be more concerned about the quality of their assets, current and future income streams/profitability, credit rating, interest cover, return on capital employed etc to get the whole picture.
Mojo - you need to look at and understand the whole of the balance sheet, not just one number. Looking at non current liabilities in isolation can give you a very misleading picture of a company. You need to view it in conjunction with non current assets and also current assets and current liabilities.
As an example if a company raises £1bn in long term bonds, then that would immediately go into the non current liabilities but would also appear in the current assets so the two would cancel each other out.
It's only when debt is used to pay for operating expenses rather than the purchase of assets that you really need to be concerned. Most people do the same by taking out long debt via a mortgage to buy a house, which is usually a good long term plan as you have an asset that increases in value and saves other expenses (rent) but it's long term financial suicide using a credit card to pay your bills as you don't have an asset - the money just disappears.
Emerald - when people talk about the price of oil they usually refer to the daily spot price. Looking at your posts you seem to be referring to the price of the SEP21 futures contract, which at the moment is trading at a higher price than the daily spot price. Thought I’d mention it to save any confusion.
Interestingly if you look at the various contracts on a spreadbetting / CFD platform, the SEP contract is trading at roughly an 85 pip premium to the spot price, whilst OCT is level with spot and NOV is trading at a discount of 70 pips. This means the market is pricing in a hike in the spot price over the next few weeks, followed by a levelling off and a drop in price, which often happens due to seasonal demand. It also means if you are going long on SB or CFD position, then if you choose the daily spit price then you actually get paid money every day to hold the position open as the spot price gets nearer to the higher price of SEP contract
The update was good and all things being equal this should rise from it. I think today is just traders taking advantage of the Asian markets wetting the bed after the Chinese clamp down to close a few gaps. SP is currently sitting on an upward support line that started last Monday afternoon, and the highs from last Thursday a week last Friday. You can almost feel them thinking about whether to bounce from here or to close the gap on the sub daily charts at 115.76. Wouldn't be at all surprised to see a spike down to that level, maybe on US Open. Honestly think that once that's done it's onwards and upwards, unless the wider market has another COVID / inflation wobble and takes a dive again, although if it does the support at around 112p looks good.
These days Eccles they need to be qualified to Level 4 as a minimum (HNC) although the good ones are Chartered (Level 6). I agree that historically most of them have been about as much use as a chocolate teapot as they were just salesmen for the big insurance companies/fund houses, and didn't really have a clue what they were doing, although it's slowly changing for the better.
You won't find a financial advisor though who will give you advice on the price movement of any individual share as that's not their job and they aren't authorised to do it. As far as investment advice goes they will usually just try to get you the average market return by investing in a portfolio of funds.
My thoughts exactly mesh. There is always that rollercoaster of emotions when you see the price shoot up, only to look at the chart and realise that the price has gapped up as those gaps nearly always get filled. Gap has been filled on daily chart but not the hourly chart - Bid price would need to drop to 115.76 for that to happen.
On the up side there are still the gaps to fill at 130p and 140p