Member Info for JonnyGee

Ladies and Gents, can we please stay on topic here? There's already enough disruption with that maladjusted cretin Grey George (have filtered him out and would appreciate if others would stop feeding the troll, since lse.co.uk has disappointingly declined to block this basket case) , but US political mud slinging provides nothing useful or informative either. Whilst I dont think any of us are in favour of political grandstanding, the company had a case to answer last year after that Bloomberg article and to their credit, came out with a decent response and actions subsequently. That being said, I do think they have a long way to go, since climate change concerns are not going away, so Rusty and the team have to factor in how they best address this for the benefit of the company as well as an emissions perspective.

As was commented elsewhere the Oak guy's comments are pertinent and I also read his earlier article on the ARO, as this is the central plank of a critical report from last year that someone posted here. Whilst Im generally positive on Rusty and the team (and am now painfully long DEC), I have always struggled with their ARO and more specifically their long term assumptions, lack of a related sinking fund and painfully slow capping activities given the 30,000+ currently inactive wells. Whilst I think they have upped their capping and emissions control game with Next Lvl, I think they are going to have a tough time answering the question "how do you plan to fund your well capping program after 2050 when youre going to have no revenues since no-one will be buying gas anymore" Its obviously a matter of opinion as to where the gas demand curve goes in the long term, but even I struggle to see it continuing out to 2090, which is the basis of their ARO modelling and is an area which they will not be able to absolutely refute because it is literally unknowable. As a result, my guess is that they are going to come under pressure to significantly accelerate their capping activities and/or allocate cash to an ARO fund. Thats my 2cents but who knows how this all pans out.

Agreed (as does the market) re the pension good news. Trading outlook still remains soft and they need a Q4 beat or stronger '24 outlook to move the SP up from here. Fundamentally good company with strong market position but facing negative macro

Given some of the comments in the thread about SRC being over focused on growth and destroying shareholder value etc - I decided to dig further into the company to figure out whats happening. Some key observations:

Whilst the company has doubtless significantly upped its scale through acquisitions - with Nordkalk in particular, they have also successfully grown the top line organically as well as defended operating margins in a difficult environment.

Viz: LfL (Like for Like) sales growth was 13% in H1 '23 and 19% in 2022, with forward analyst forecasts indicating a pretty respectable CAGR to 2025 of ~6%.

EBITDA margin has actually grown from 18.1% in 2021 to 18.9% in 2022 and H1 23, despite the inflation s**tshow.

Buying companies for low multiples absolutely does NOT devalue the buying company – as a former private equity manager who has done buy and builds I can assure you that to achieve low acquisition multiples, achieve operational improvements and to achieve a higher exit valuation for the improved and enlarged whole is one of the surest ways to increase value. The company currently trades at 5.5x 2023 EBITDA, which even at the current low values means acquisitions have been accretive at the

Hi Vigneron - would also be very interested to hear from Max if you'd care to share. My email is jmglg@blueyonder.co.uk

Hi guys, am relatively new to JSE, though was tracking it for a while, and decided to pick some up last month when Montara blew up and it looked oversold, though speculative, so a fairly happy camper on that trade right now. That said, am curious where this goes looking forward so have been looking at the company presentation slides from July, and street forecasts and seems to me that consensus forecasts dont even include any Akatara revenues coming onstream, since producing asset volumes for 2024 are shown by the company at around 17,500boepd, which at. say, $75 per bbl would get them to revenues around $480mio in '24, and the street consensus shows $461mio. Am I missing something? Also, does anyone know - or can point me to information talking about the Akatara economics? Gas has very local pricing and Ive no idea what their benchmark will be - or if they have any offtake agreement in place. Can anyone help out on this so I can get a sense of that?

Hi Trek

You're right that deal related cost accruals would have been booked in other liabilities, but from what I see in the commentary the volume of such provisions (~$20mio?) doesnt reach even a fraction of these "other current liabilities" - $463mio at 6/22 falling to $303mio at 6/23, though i could be wrong given the potential hedging contracts they also set up - though I think they would be booked elsewhere.

Hi Trek. Yes, the FCF number is a bit of a curve ball. Looking though the cash flow (I ignore the P+L as its pointless, courtesy of the "market price" vs realised hedged numbers) there was a huge outflow in working capital settlement - primarily due to a $161mio reduction in "other liabilities". Interestingly, it went the other way in H1 '22, so looks like a volatile line item. These are big numbers however with zero commentary on the financial statements on their nature, which is something I would definitely like more visibility on. As a former CA and subsequent PE guy, to my mind a large number classified as "other" is never a good look and will be curious if they comment on it in the results presentation today

Last time they did a placement like this - which was short on explanations as well, the price subsequently tanked big time. Ultimately it worked out as they had a large acquisition to fund, though it was a while before it happened. Given the potential for similar market response, I wont be participating, since my working assumption is the market may likely puke again and I can buy cheaper in the market. I may of course be wrong, but there are too many similarities, so Im somewhat cautious about this.

Anyone got any idea why the price tanked 4% today in a quiet market on the news of the Mauritius/Madagascar sale? Im assuming its a tiny, irrelevant operation as they didnt even disclose terms, so no idea why there was such an adverse reaction, unless theres something else out there Ive missed?

Have been looking at RCH as potentially interesting but have a couple of thoughts/ comments to run by you if youve been following them a while, which it looks like you have
(a) Digital growth has stalled - they were claiming in the July trading call its due to to reduction in advertisers not wanting to be seen online near Ukrainian war news, but that isnt really convincing me along a more widespread digital advertising slowdown Im seeing across the industry (classic recession/ impending recession advertising behaviour). Any hearing/ seeing any other colour on this since its hugely important for them to dig their way out of the print decline
(b) you're correct about pension liability reductions across the board with higher fixed income yields and discount rates, but when I looked in detail at RCH's pension asset composition, there is a scary volume of Liability Driven Investments - the notorious derivative instruments which nearly blew up the UK Pension industry in September. Pension funds were exposed to huge losses form this but I dont see any public comment on this from the company - maybe someone on this has seen company commentary on this somewhere - ideally stating that they didnt have an issue with it?
Would be great if someone could comment on these two points if you have any additional intel?

For anyone who's interested or did some similar analysis, have been running through their operating numbers further and have a few comments which may be of interest

(1) Whilst the Express VPN acquisition was a material coup in my view and has taken them to another level, it should be noted that (a) its a lower margin business , resulting in 51.2% Privacy segment margin in H1 22 vs 55.8% (b) has doubled the level of employee share comp as a % of sales to 4.3% in H1 22 (and this IS a cost before anyone starts to pretend otherwise)
(2) They are playing around a bit with their numbers in two regards (a) they are not immediately expensing customer acquisition costs, but deferring them over an "expected life" including estimated renewals. Whilst technically you can argue for this, and they clearly did with the auditors, it is highly aggressive and absolutely not best practice particularly for a heavily B2C business where there are no long term contracts to back this up and things can change. It also overstates their earnings compared with comparable companies using a more conservative approach and may go some way to explain the apparently very low p.e. ratio they trade on (b) whilst they (correctly) make an adjustment to H1 22 segment results to reflect Express VPN pro forma acquisition costs, which highlights the segment revenue reduction I note above, they choose to then ignore this in the rest of the reporting. If one were to include this appropriate adjustment, then adjusted EBITDA margin fell in H1 from 42% to 32% - a quite significant margin compression. Moreover they then actually made a pro forma operating loss in H1 of $3.5mio and net loss after tax of $21mio. Admittedly the huge jump in D+A to $77mio contributes significantly to this, but the hammered EBITDA margin, hefty employee share costs also are a factor and makes me wonder how this is all going to look when they start reporting numbers without the benefit of technically not having to show these customer acquisition costs

In summary, I do think its an interesting company with a good position, but their numbers needed to be taken with a grain of salt and probably deserve discount as a result.

This is just my own analysis (as well as direct experience with Israeli tech companies who do tend to be fast and loose with their approach to reporting) and would be interested if anyone else has looked at this and has any comments.

Hi guys – am looking at Kape shares potentially given their strong market position and apparently low valuation. That said, there are some odd things with their post Express acquisition balance sheet numbers which I cant figure out so wonder if anyone here has gone through the same process.
In short,
(a) intangibles looks insanely inflated given Express VPN was <$1bn but intangibles have exploded by $1.3bn (intangibles tend not to bother me too much provided all other metrics make sense, but they can also hide other shenanigans)
(b) the deferred contract liabilities , which I think represents Express VPN deferred income, increased by $119mio, but (i) are not backed up by equivalent cash upon acquisition, rendering it non-income and (ii) does not appear in the working capital movements in cash flow – which states only a $3mio (!) increase in this balance To a certain extent this is offset by deferred contract costs , whose $33mio change are correctly reflected in the cash. I note the only way the deferred revenue number could stack up and the balance sheet balance , is if they’ve stuck the equivalent amount into intangibles (see point (a).
I note that the argument can be made that deferred revenues can be ignored (as being worthless) to the extent a company continues to genuinely generate similar levels or (preferably) increasing levels of revenue, as long as you’re not having to also cover any costs/ liabilities incurred by such non existent revenues, but this isn’t clear to me and Im pretty uncomfortable at the lack of transparency and consistency on the numbers.
By way of background Im a qualified C.A. (from decades ago) and investment banker then private equity guy, so I do know how to read numbers and interpret them, and these ones don’t seem right (plus the change of CFO doesn’t help). I may be wrong and perhaps there is a good explanation/ analysis somewhere, so could anyone here help me find that if you had the same questions?
Cheers

Quite - Permira is not exactly distressed and its hardly in their interest to push the price down by selling into a crashing market since they will need to mark to market at quarter end i.e I think those guys are likely the last guys to be "dumping", especially given market illiquidity and the size of their holding - plus the actual results and forward looking statements were a long way from catastrophic - Im a little puzzled to see why the market puked so badly, though they are admittedly now trading reasonably closely to peer multiples, so a correction and reality check was overdue I suppose.

Thanks - now opened one with AJBell. Very easy to do and I see their costs are way lower than Saxo

Hi all, I know this is an old subject but have trawled through threads and cant find an answer. As we all know, we get hit with 30% WHT (withholding tax) if we're in the UK, unless a broker plays ball with a W8BN to reduce it to 15% or even to 0 in a SIPP. My broker (Saxo) wont do this. I like their platform and everything else but they have flat out refused to deal with this one. Does anyone here have a broker who does actually deal with the WHT issue - and even better if its one who will zero it out in a SIPP? Id also prefer it to be a reasonably priced but competent broker with a decent online platform for obvious reasons.
Apologies again for raising it but couldnt find peoples' specific recommendations for this - only "find a broker who does this", which isnt very helpful :(

A couple of thoughts on some of the posts today.

Re potential share buybacks/dividend increases, I agree with the comment that we should expect only very incremental and gradual divi increases and I also do not expect share buybacks for the following reasons:. (a) Acquisitions and the ability to finance them without going cap in hand to shareholders for a capital increase are a very high priority for the company - without acquisitions their earnings (and dividends) decline due to natural depletion rates, hence retaining the financial flexibility to execute on M&A is supremely important (b) the market puked all over the unexpected capital raise last time and I think management have learned from this (c) Rusty has made no secret of wanting to get a US listing at some point but was also clear they need to reach a >$2bn market cap to raise enough interest (I agree with that observation - anything else is "micro cap for US institutionals") and share buybacks go against this (d) at some point they are going to have to start getting serious about building up cash reserves/plugging activity for the ARO (e) Management is naturally conservative (which I respect and like) and so dont want to lean too far out the window with aggressive dividend increases as it jeopardizes all of the above.

On ESG and plugging, I like what they are doing and that they are taking it seriously. Their share price was crucified by that Bloomberg hatchet job, and whilst i think Bloomberg were out of whack on much of it, there were some valid points which need to be addressed. Given the 3,000+ non producing wells that they currently have, I still find the 130 p.a. plugging number something of a bad joke and they are likely to come under continued pressure until they are seen to be upping their plugging game proportionally to reflect this reality. Increasing the inhouse plugging capability and even providing these services to 3rd parties is a great move in my view but I think it needs to be ramped up by multiples of their current capability - which may indeed have the capability of turning them into an ESG angel as has been observed

One final point on some of the "lower cost" comments - the central region acquisitions , whilst they have better sales price - closer to Henry Hub levels - they also have significantly higher BOE costs (and plugging costs - the wells are deeper) and decline rates . I havent yet done a proper analysis on this and would like to see more comprehensive data from the company, but would be cautious about assuming improved cash margins overall - though i do think there should be decent room for SWM synergies in the new region, particularly with more infill acquisitions

Thats my 2 cents for the moment. Think 2022 is going to be very interesting

Land is typically leased. The key issue here is the cost of plugging the end of life wells - known as the ARO liability. Based on their current well count and $25k per well plugging cost that's a $1.7bm liability. If youre interested, look at the investor Relations site under presentations where there is an ARO supplemental presentation from August 2021. FWIW they cant continue increasing the dividend (or even maintain it) and fund the ARO, but then thats not news to anyone given their ~7% decline rate. Basically the dividend levels are only maintained/ grow provided they continue to acquire assets to replace the declined production volumes. Theyve done a great job to date on the acquisitions and I assume this will continue, but at some point the music stops. I actually ran a "run-off" model at one point and came to a fair price conclusion somewhere in the 100-110 range (a lot depends on your discount rate as well as assumed yield on cash reserves for the ARO, but thats sort of where I ended up - which is where the market tends to trade)

Any idea if theyre putting the discussion/video up on the web? I see the powerpoint presentation itself, but missed the management presentation and would have liked to have listened to that - plus the Q&A. Dont see anything on their site yet unfortunately

I think you're right that the Capital markets day is going to be pretty important on this point. If one has actually read the original Bloomberg article itself (and not just looked at the video which was tabloid garbage) there is definitely a case for DEC to answer and I would very much like to see what they propose to do to (a) address plugging of the 3,000 idle wells in Kentucky, Ohio, Pennsylvania, and West Virginia in advance of the lamentably low annual state plugging requirement of <90 p.a. (b) provide better quality information on well flow rates and idling profile (given the articles observation of uneconomically low flow rates on certain "live" wells) (c) confirmation of the adequacy of their plugging process, given commentary that $25k is a questionably low cost per well for plugging (d) how the retirement obligation on the CNX assets fell from $200mio per CNX to $14mio per DEC (e) how they propose to properly monitor over 70,000 wells when they only have 9 remote well monitoring devices per their last trading statement etc. I believe it is entirely possible that the team have credible and defensible arguments and evidence on each of these points, but the burden of proof does lie with them and there is clearly an ongoing sea change coming into effect regarding methane emissions in the US which the company is going to need to proactively address, comply with and factor into their ongoing cost calculations.