Member Info for damofarl

noted this bit from annual report which i find reassuring: -

"The Portfolio Manager has raised the default rate assumptions to match the current recession risk and market expectations, and under those revised assumptions, the Company’s portfolio should deliver positive returns, at or above its target of 10% of NAV in the base case, and still positive in the stress case."

Also not they have increased cash back to 10% (despite not that long ago saying they would cap this at 5% and return excess), to take advantage, they say, of the opportunities in widening spreads they expect. Seems all very much boring business as usual...

Hi Archy;

i have about 23% in these types of stocks and just under 7% here, levels/a concentration, i wouldn't recommend to anyone, but which i'm perfectly comfortable with.

Generally speaking i don't hold more than 20% in any area (say oils or housebuilders or banks), or more than 5% in any single stock, but here I am. I'm partly overweight because of conviction but also because other more mainstream high yielders i hold have struggled (housebuilders/mineral companies sanctioned etc come to mind).

Adding has to be your call, but beyond the risk of concentration, the specialised nature of this sphere, you have to be prepared to hold, and hold (think 5 years), as liquidity and spread will punish you if you need to sell sharply. Also expect zero SP growth.

i'm confused...so you are saying November was 1.59, and December is currently 1.185?

hi Trek;

Yes i got your response to Trot re cost impacts, and your excellent post responding to that exampled how i don't really see that as issue, more as a day to day fluctuation rather than am impactful event. Credit to DEC for that.

I also get your analogy...if you buy beans, so don't be surprised if they are nothing other than beans. I bought beans, and i'm not disappointed with the beans - i am disappointed that the opportunities for those to be better/richer beans, even sausages have been, and continue to be, missed.

The hedging floor may have been increased, but relative to the resource increase on comparative time points? I think not, and whilst appreciated, surely higher floor hedges should facilitate the need for less % of hedges? I don't see that happening, and as such see that as lazy mgmt. Surely a higher floor achieved would equate to a lesser necessity/percentage to protect costs/yield.

As for being all things to all people, agree. I, and i feel most are here, for the certainty of the yield, not for growth per se. And just because i'm delighted with DEC's continuance, certainty, of dividend/yield, delighted with my beans, that doesn't detract from the fact that their singular focus on covering costs/dividend, has caused overly conservative hedging that has lost us more/richer beans.

Thanks for the hedge suggestion TXP. Not my cup of tea, jam tomorrow kinda of stuff, hence being here. I do utilise the US midstream companies to that same end though.

Good luck to you to, albeit i don't think luck applies being in DEC - we may disagree on nuances, but we don't disagree materially on DEC's MO. It's the investment gift that keeps on giving....

hi archy; yes i'm here too, overweight in this sphere of investment and particularly in FAIR but comfortably so. To answer your points...

20% yield - well it's16.4% on todays SP - the Company recently advised of a new FIXED dividend policy, namely 2c a quarter. If you go back thru the comments, you will see, i /others, weren't sure of the value of such 'fixed' nature, which was announced alongside a share buyback programme to reduce NAV discount. That said, it gives a minimum floor, (yield) and certainty, reinforced by this accompanying statement...

"...Establishing a consistent level of dividend provides greater certainty about future income for existing and prospective shareholders; based on the last quarter's portfolio cashflows the 2 US cents quarterly dividend would have been healthily covered.............The Board and Investment Adviser believe that recent movements in the market price of the 2021 Shares are not being driven by fundamentals and intend through these measures to demonstrate the Company's capital discipline and confidence in the Company's cashflows and NAV." - The key there is 2c is healthily covered.....

Moneyweek quote; fair comment that, yes technically it's high risk; the nature of how they make their money is technical to the lay person (which includes me!). In a nutshell, they borrow at 5% and lend at 6% taking the margin as profit we see in dividends; so yes, impacted by interest rate changes, which suggests a volatility, but actually they are a margin business so if well run (i believe they are) they are constantly rotating into whatever the current rates (that they borrow at and then lend at) whilst still earning a margin. The 'risk' any investor in this field needs to know about CLOs is, they are akin in some ways to the spreading/packaging of multiple mortgages, supposedly to spread risk, which actually concentrated risk and caused the last financial/banking crash, except this investment is in corporate loans and not personal mortgages. I find, because of the spread, generally your SP is down day one, but a years yield covers that, then, as i've found, a 10%+ annual yield - you just need to take that initial hit as part and parcel.

Share price halving - aside from me getting it as about a 38% drop in your 10 year timeframe, one has to accept that this type of stock is predominated on paying an income/yield not on growth. the Co is constantly paying out the value they generate, so without growth in their (provision of) loans, reducing their market cap/SP is sort of inevitable. What have the dividends received been in that 10 year period? in their consistency, far in excess of that SP loss The flip side of that, is that if they were to stop lending, manage out their existing loans to close, there would likely be an SP appreciation, but the annual yield lost forever.
Buy sign; yes, but the supposedly complex/high risk nature here deters people and make this (and it's ilk) a bit of a hidden secret. J

trek/trotsky/ace;

i don't think anyone is suggesting something amiss/a basket case at all - indeed all i see is everyone understanding DEC's modus operandi, which in it's simplest form is akin to a bank paying savers 3% and charging mortgages at 4% and paying the difference out as dividends. I'm a big fan of the mgmt's use of hedges, to provide the certainty of covering debt/dividends, which makes them a de facto (high yielding) utility/infrasctructure type stock; no shocks, certainty of yield.

That said, i totally agree with Ace in that their use of hedges is excessive, is limiting upside (and in the last 6 months, a lot) at the alter of certainty. Personally i would prefer they deployed enough to cover debt costs, and only enough to do such, leaving the rest unhedged. And they should only take out hedges at a floor price, that enable us to cover such, allowing the rest to offer upside. I like their conservative approach, but it's too conservative.

Yes, to reduce the level of hedging would provide less consistency (of quarterly dividends), but at the minimum level required to cover debt, the yield would be more fluctuating, but more rewarding. The fact they don't just utilise a floor price , as Ace intimates, does shout tunnel vision mgmt to me.

If the business model is so sound (i believe it is, am a big fan), surely their finance team could better manage the risk (market price), to cover costs without losing so much of the upside.

aye poor RNS but hardly surprising.

On the plus side, even if they just blunder on, the Tawke receipts (with zero override contribution) will mean in 12 months, they, along with cash in bank, will be greater than market cap. I think a position whereby you are only reliant on a year of KRG politics/payments (11 out of 12?) is a comfortable baseline for the patient.

I do feel, thank god for DNO knowing what they are doing......risks, imponderables considered, this is still greatly undervalued - even with a cack mgmt.

so what is it? a new high of 1.185 or 1.59 million bbls?

some good posts in the last few days - thanks to all for that, which i find infinitely more useful than the "this is going to bomb/rocket" type. My general thoughts are conflicting in that i'm uncertain whether this is a poorly run unambitious Co, or a Co tightly focused on churning an asset to dry. Whilst their actions (inactions) make my mind up, i enjoy the divvy, frustrated with the former but happy with the later . Specific thoughts:

Litigation; I've basically discounted this value to zero. If successful, its a long time day the road to arriving, and i agree with the point made, with a single customer, what we may get in 1 sum in one hand we will lose over many years on the other hand.

Somaliland/Morrocco; agree with the comments regarding the lack of progress, which shouts to me of lack of ambition/belief, but also, as suggested, a lack of internal skillset/ability to pursue. If GENL pursued these wholeheartedly they would provide the diversification of jurisdiction and customer so desperately needed without acquisition.. To me they really need to put up or shut up on these. Quickly.

DNO/Tawke; the comment on DNO's operatorship being a reason GENL isn't defunct struck a chord with me. Without DNO i wouldn't be comfortable in the sustainability of the divvy that allays my frustration at GENL not kicking on/diversifying.

Acquisition; i do feel there is something brewing here, and kind of feel anything PRODUCING would be good if only for diversification, and wouldn't discount some kind of merger. To purchase another 'prospect/licence' would probably signal my exit, as exampling my concern over lack of focus/direction/capability/ambition.

In the absence of ambition, i'd actually rather see this just churn out the fields, and payout the income utility/infrstructure like - with the requisite reduction of Company overhead that such should warrant.

Thanks all for the excellent comments; good luck all.

danisstp1906; Thanks for that - i too am wary for book value to be manipulated/illusionary; thanks for the kinda insight i was looking for to assess if it is true.

thanks for that; i was aware of how to calculate book value, i just felt you had some specific insight into why those values should be considered valid

opulentia; momentarily i'm goin to join in your euphoria.

lets take 45k bbls a day production with no improvement/detioriation for 50 years so say 821 mill bbls and a price of $30 bbl after brent discount and our low production costs. Lets presume we are getting just 10% profit oil on our 80% and we get receipts of $1,970,400,000. Great a $2billion Company.

If you take all that as read, but instead take the view that this could be annulled/nationalised/terminated by the political environment within 2 years, (unlikely but possible), with year end cash this years production and 2 more that would give a $380,000,000 company. Arguably the current market cap is already pricing in the promised 55k bbls and oil price >$60.

I would love you to be right. Alas the market seems to side more with my extreme than yours.....

How do you value book value here? serious question, as i can't see where that is constituted.

aye jim800, we did! Just to clarify though, the change in tone is to a purchase, from "considering", to "running the rule" over i.e not opportunistic, but a specific target.

We shall see, but my tea leaves are bubbling! Good luck!

archy147; welcome! it may be a sp**** board but it's also waffle/agenda/ego free.

From the latest factsheet, which whilst hardly fireworks (it's a refreshingly boring investment), it seems very much business as usual:

"......For the Company, there was no notable change in the credit performance of the portfolios although we are tracking a couple of idiosyncratic credit stories that have emerged in September/October in the Portfolio Managers’ other portfolios. It is however not anticipated that these will have a material impact on the performance of the CLOs and are already priced into the risk......"

mick2020; you've been unstintingly correct about the quality/self interest of mgmt here; just want to thank you, because a few times i've looked at the fundamentals long term and thought to add to my original holding but desisted just holding on to get something out, which this news offers. But yes it's a steal, and alas the lack of a break clause tells me this is a self interest stiched up done deal.

Thanks Mick, doubtless we cross paths elsewhere.

seatanks; on the state having the funds, i disagree.

As for the rest of your post, frankly, in it's sarcasm/scepticism, i feel you've pretty much hit the nail on the head; progressing this deal threatens the status quo of establishment of bungs and numerous parties abilities to syphon 5% here and there. The obstacle to this deal is SEPL's desire to operate professionally, without bungs, reducing the opportunity (governmental or otherwise) to syphon money out the side.

We are one here on the prospects regardless of Mobil

Hi Gavster-NBC; hope you/your investments are doing well (we seem to share a few!). Your post sort of welcomingly disorientates me.

If Nigerian investors are paying £1.93, they obviously believe in/value SEPL, so why at 88p don't UK investors? Yes, why the disparity?

Can somebody more learned than me kindly explain, give a rationale for such disparity? There must be something obvious i'm missing to explain the difference.

Personally i find the Nigerian equivalenced price, near/at true value, so happy with my disorientation, happy in my belief in the value/growth/income here.

with today's receipt, i make that about £200 million cash now.

I went back to the announcements, and i may just be overthinking this, but there is definitely a change in tone from March, when mentioning further incremental cash returns to August when this is not mentioned at all, and instead the emphasis is on growing returns to maintain dividends and build out income streams. I'm not unhappy with this subtle updating of shareholder expectations, as long as they execute well to deliver such.

From FYR March 22 -

"The forecast extent of our cash generation, from an existing position of financial strength, provides the potential to deliver significant growth and further returns to shareholders."........."Should the current oil price strength persist, Genel will consider incremental returns of cash to shareholders in addition to our commitment to a material and progressive dividend"........"We continue to consider potential acquisitions that fit our business model and aims, and will remain highly selective and opportunistic in this area"

From HYR August -

" Our cash flow this year benefits from the recovery of receivables and our override payments, and we are focused on replacing these by building a portfolio that supports the resilience, sustainability, and progression of our material dividend" ............and ...."(income/receipts) This further strengthens our balance sheet and provides us with an opportunity to invest in building out our portfolio and fulfil our goal of being a world-class creator of shareholder value."

"While Sarta retains upside potential, should Somaliland exploration be successful it will be some time before we see a positive impact on our cash flow, and hence our focus is firmly on putting our capital to work through the addition of new income streams. We continue to run the rule over opportunities, with strict criteria focused on near-term cash generation and the ability to support and grow our material dividend. "

". It is our clear strategic goal to utilise our balance sheet to add long-term cash generation that would support the progression of this dividend."

tod; when i first saw the acquisition RNS, the 'reserve takeover', my first thought was that SEPL were aware from day 1, and were (hoping to) circumvent the right of first refusal option; and agree as such, legally i agree with you there isn't legal impediment to the deal.

Agree it's a conflict of interest. Agree logic is absent in Nigerian politics.

I no longer feel the deal will go through, and if so, the potential damage to inward investment in Nigeria will take a bigger hit then SEPL's sp; that said i see an unlikely but potentially face saving out (for all parties/Nigeria), namely the purchase of a major/contolling stake in SEPL by NNPC, in one delivering a national champion, a concentration/economy of production/costs whilst promoting inward/private investment.