Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
The chances are that Paulson is continuing to reduce its holding and this, as in the recent past, is placing a ceiling on the share price. But hopefully as each week passes we get closer to the end of Paulson's sales, and hence the removal of the tap. Sooner or later I suspect Oasis will want to reduce its holding to a more normal portfolio holding, say 5%, but with luck, not at these prices. I agree with Kall that this is one for patience. Meanwhile we have the interesting and positive refinancing news to come.
Jim, if you look at the one year price chart you will see that there has indeed been a 'steady rise' over that period. The superimposed short term fluctuating are not at all atypical as can be seen by looking at many other shares over the same period. As Kall has said the announcement on Wednesday is going to be 'interesting'. Might there be an update on loan stock renegotiation, or on the pension fund deficit, given increasing interest rates? However, I suspect that the dividend decision (now or next year) could have the biggest SHORT TERM impact. All being well, the one year steady rise trend should continue.
I suspect the Board is facing a bit of a dilemma concerning the dividend.
On the one hand the absence of a dividend has the virtue of allowing more debt payback, which has a positive compounding effect. On the other hand the payment of a dividend (say 1p) would broaden the number of funds willing or able to invest. This amongst other things should allow Paulson to sell its remaining shares more easily - hence removing the tap at between 95 and 100p and improving the chance of a share price rise. Also, payment of a dividend might improve the credit rating and this then should enable the Company to get better refinancing terms for the £300m loan due October 2023. This would reduce the interest charge, though not as much as the cost of the dividend. Paying a dividend would necessitate an additional payment to the pension fund, but this would be a debt reduction, though proportionately modest.
It seems to me, therefore, that there is a possibility of a year-end dividend.
I think Kal is right to recommend defocussing on the share price for a while yet.
The price has wobbled around 100p since August last year. It was in August that Paulson and Oasis started to reduce their shareholdings. Paulson has reduced its holding from 12.06% to 7.04%( as at 12 March), and Oasis has reduced its holding from 12.05% to 8.96% (as at 17 December). So some 68million shares have been sold at about 100p.
It seems that both holders are gradually selling down their holdings at a price of about 100p - presumably at a rate the market will bear without reducing the share price.
They still own about 59m share (Paulson) and 75 million shares (Oasis).
So excellent as the longer term outlook seems to be with the cumulative degearing and reduced pension fund liabilities. we might have to wait until the two holdings have gone down much further. Institutional investors are unlikely to bid up the price when they know there's a tap there at about 100p
Re dividends, Kal. I value your excellent posts and agree that debt reduction is of crucial importance to future growth, as I said in my post yesterday. But I think you are missing a small point on dividends. In some (I accept, minority) circumstances dividends can be more financially valuable than capital gains. And as Consultgreg says they widen the range of potential investors which should affect the rating of the shares. As for pension contributions, they reduce a liability just as debt repayments do.
Short term price movements, largely determined by short term traders, are difficult to predict and even more difficult to benefit from on a consistent basis, as we probably all know.
PFD's exceptional profits arising from C-19 are enabling the company to pay down debt much more rapidly than could have been dreamt of a year ago. This is extremely important because it gives management much more freedom to allocate resources (including considering a dividend which should improve its credit rating) and it reduces risk. When Next solved its balance sheet problem in the early 90s its share price was about 30p!
The consistent application of reasonable strategic decisions (even if not brilliant) should lead to a steady modest growth rate (albeit from a lower base than the 2020/21 level). The escape from high debt and steady growth should merit a PE of 15 plus (as long as the market doesn't collapse). This scenario, which I think is more probable than possible, would give a share price, say over two years, of 150p plus - a return of almost 25% p.a. Looks good to me.
This is a first post for me. I've read past reports for a long time and I've been been drawn in because of Kallumama's excellent analytical and well thought out contributions. I was not in favour of a the suggested 2016 65p bid (if bid it was) for the reasons that are now becoming clear. For what it's worth here's my two penneth worth.
Past comments on the last management have been rather unfair. They did a lot of 'heavy lifting' (asset sales, reorganisations, new products, rights issue, and so on). The current management does seem to be doing an excellent job, but they are standing on the shoulders of the old team's work.
The main reason for the recent share price surge is, as we all know, the sorting out of the balance sheet (including the pension deficit). In the late 1980s Next had a disastrous balance sheet and a share price below 30p. They sold their then mail-order business Grattan to Otto Versand in Germany and transformed the balance sheet. This gave them resources to expand. Over he next 25 years the shares went to over £70. The management was, of course, excellent and they could exploit the fact that M&S was losing its way.
Has anyone noticed that during Premier's share price upsurge the price stabilised for several days around 40p, 50p, 60p,70p and 80p - caused, no doubt by holders reaching their pre-decided selling points. Could the current stability (down from its recent high) be a bit different? Oasis and Paulson will probably looking for an exit at some point. We must hope that that is in excess of 150p (Kallumama' calculations suggest a value up to 200p). But it might not happen. To attract a buyer of the Company there needs to be some in-built value left on the table. If the target selling price is, say 100p, then stabilising the price around 85p gives the possibility of a 20% take-out premium. A takeover at 100p would mean current and long-standing shareholders missing out on the full value of the company.
On the other hand, if the management can introduce enough new good quality products and there is some residual post-Covid momentum to lead to a sustainable growth rate in the region of 5%, then the potential for the share price, in the fullness of time, is even above 200p. If this were the view inside the company the major 'weak' holders might be persuaded to stay in for more value, though they might not want to wait very long for an exit.