Member Info for londoner7

romaron, thanks for the clarification.

There you go! You’ve broken the silence with four posts in reply, and all with a reference to ENQ. An interesting perspective on AB and by inference the impact on Enquest’s direction, but I don’t get the lead in with Vitol.

Last time I looked, the PMO board was at 32 posts for the day. They cover war with China, the economy, and health. I don’t know why I bother with my subscription to ‘The Times’.

the EBT?

Sweatysock, you say, "I would see the proactive investment forum as a great platform To highlight ep145 and encourage other potential jv partners for future drills on galaxie etc ."

Did you propose any questions on these activities?

I proposed a couple of questions but not in this area.

In case anyone missed it, the forum is a Proactive webinar event Thurs 6pm, and you need to register.

chilting, I take your point on the dilution but I think they have to go with the equity raise. I've heard grumbles from the PMO board about the need for the placing, but the discussions with the creditors are ongoing and they will want to see additional equity to counter any relaxations on the debt side.

But the placing is well flagged and so I'd guess largely priced in. The SP will still move in response to usual market drivers but probably not placing news. $210m placing coming within the next 8-10 weeks, and I can see a book building process which limits the discount the larger investors will get. But a token retail offering is expected, which will probably be priced on the same terms.

Beyond that who knows about the SP, but generally the market responds positively to the removal of uncertainty.

I feel I should dig around for something to say about Enquest, but you started this thread ;-)

"Having said that they have no debt and no reason to raise via a placement. "

I don't think a placement is even a remote possibility at this time - if it was, say goodbye to 100p. But debt?

All companies try to reduce their working capital number at year end - it makes the balance sheet look good. Just unfortunate that GFRD are so blatant in their contract terms and seem to be maintaining their poor reputation amongst contractors - perhaps sour grapes from past dealings. The year end £195m means the average for the other 5 months was c£130m, still above their >£100m target for the six months. But what is happening mid month?

I missed most of the analysts call, but two points struck me. One, a suggestion in one question, that at the other end of the balance sheet the government had been good payers in light of the difficulties around covid. Will that unwind over time? Two, it appears that GFRD do not have a credit facility in place if the cash balance does go negative at any point in the month. Perhaps they will fallback on an overdraft facility.

That all said, the recent decline in share price isn't far out of line with the construction sector generally - Persimmon aside? So for traders, I wouldn't be surprised by a bounce short term. But I'm an investor, not a trader, so I'm holding fire until after the Sept results which will reveal a fuller picture and GFRD will have to provide better guidance than they did last week.

I took a look at the PMO deal a while back and concluded that I'd have been happy if it had been Enquest acquiring the asset, but for the fact Enquest has a greater priority in paying off the facility due next year.

I've lost my workings but a quick and dirty look seems to support the deal, but much comes down to whether /when the conditional $115m becomes due. I've seen no information on the conditions associated with this $115m and having raised it on the PMO board a while back I don't think anyone there knows either. But on a second look I think the $115m will become payable when/if oil/gas prices recover - just not now. For now there's $210m to find.

I suspect the detail will come with the placing price, which looks to come with a small pre-emptive element - a token to the retail investor. At the moment the workings are 625-300-115 = $210m.

But I wonder about the $300m, and suspect it could be higher which would make the deal even more attractive to PMO.

Working just the Andrews field numbers for 2019, OpEx $17 boepd, production 18Kboepd. Just looking at oil - 84% of the mix, making c15Kbopd, and raising the OpEx to $20 bopd, taking account of the fact gas is cheaper to extract, I have:

($65-20)*15K*365 = $246m minus CapEx = FCF.

For 2020, if oil holds at current price till Sept, and using 12K bopd due to cover field decline, that's another $66m minus CapEx.

Similar calculations for Shearwater oil gets another $40m. That's a total of $352m minus CapEx. The c5Kboepd net gas should add at least $15m.

The detail of cash flows won't be know at the time of the placing so expect $210m, but perhaps another $50m to come off the price later.

Should be paid off in a couple of years and PMO are left with c45MM boe off 2P and 2c to play with.

BP aren't giving it away but then PMO doesn't have to buy it. As I understand it, PMO could still walk away.

To be clear, I'm not rating the PMO business, or the equity placing, just the deal itself, which is the question this thread raised.

A correction to my comment

"Poor liquidity - As you point out, there are large institutional shareholdings. The top ten account for >80% of shares."

My reference (Barclay) had a bogus number for Fidelity. Using FT data the latest number is 50% held by the top 10 institutional holders. There can still be many more institutions with holdings below the 3% reporting threshold.

I note that Fidelity reduced their holding by 5.87% on 19th June. This coincides with the recent slide - price closed at 304p on the 18th June. That is a lot of shares to hit an illiquid stock like Headlam.

I'm not an expert in this area but my understanding is that a broker will have taken delivery and would then offload the shares into the market and perhaps off market to other institutions.

I can't gauge how far into the sale process we are, but I 'd guess there are informed people in the market that do know. Time will tell.

There is competition in every market. It’s healthy. The question is the degree to which it impacts the incumbent market leader, in this case Headlam.

Will the new player be say, a Fevertree eating into Schwepppes market in tonic water?

I wouldn’t be surprised if Tony Brewer had Fevertree in mind as he set out to topple Headlam’s dominance of floor covering distribution.

Pack your team with ex-Headlam players – I’d image there are few in the industry that hasn’t worked for Headlam, think Shell or BP in the oil industry. Point to Headlam’s juicy returns on capital and sell your package to the city. No doubt the sales presentation includes a reference or even a slide in homage to Fevertree – investors lap up that sort of stuff.

Result!

£15m of equity raised and a market cap of £52m (33p share price) by Sept 2019. Tony even sold his story to the industry. In May 2019, Jonny and Paul of H&V Carpets, sold their c£6m revenue business to Likewise for 1 Euro and 1m warrants in Likewise shares at 30p each.

So far so good. I’m sure Headlam were looking over their shoulder. But let’s get real. Likewise are building up from a small position.

Compare:
• At the last Likewise numbers admin costs at £3.5m were 33% of revenues (Headlam 7%)
• Likewise non-current tangible assets were £5m (Headlam £114m)
• Likewise current assets were £7m (Headlam £102m)
• At the last results (interims June 2019) Likewise made an operating cash loss of £1m (at the same stage Headlam £16m cash gain)

But look again at Headlam’s non-current asset number, £114m. When a business has been running for 28 years a lot of capital investment has been depreciated. It goes a long way to making Headlam’s ROC (tangible) look so good, c20%. Headlam is about to add its 24th distribution hub (Ipswich) at a cost of £26m.

I have great respect for people willing to challenge established ideas and markets, but it is tough and even in the good times, few succeed.

I say again, 24th hub at a cost of £26m. Likewise last reported PPE was £5m for their entire business. To be fair, it will be higher today, but we are waiting delayed final numbers for Dec 2019. The 2019 numbers will be there, but the auditors must sign off the accounts as a going concern – that is the hurdle and undoubtedly the cause of the delay, because Likewise say so.

26/06/2020 news item

https://www.tisegroup.com/market/companies/7055

I hope Likewise come through. Tony is likely to have invested personal capital, and Jonny and Paul have 1m Likewise warrants priced at 30p – last trade price was 15-17p. If not, the assets will still be there, so too the ex-Headlam team, but new capital will be required. Will the enthusiasm be the same?

Sadly, Covid will be the cause of many similar stories.

I think Headlam’s share of the floor coverings market is secure for the moment, at least from Likewise.

steve305, thanks for your comments.

Interesting point on oil. At the start of the CV lockdown oil producers were clearly a bad place to be, with considerable uncertainty. I was targeting my investments in other sectors. But four months on I now see the oil sector having greater certainty and the impact of a lockdown period that far exceeded my expectations casting a shadow over many of my earlier assessments on non-oil sectors.

To Headlam. In no order and not a complete list, here are what I see as bull and bear points:
Bull
• Long established (28 years) and financially secure business (negligible debt pre-Covid)
• Market leader
• No impact from disruptive technologies – at least none I see
• Should largely recover to pre Covid numbers by 2022, barring any impact from the bear points.
• Good dividend payer

Bear
• Impact on commercial market of working from home. Fewer offices?
• Competition - Likewise
• Share price – broker forecast is for PE 11.5 in 2021. Not cheap. The bull points above come at a cost.
• Poor liquidity
• Retail investor communications

A brief comment on the bear points:
Commercial Market – working from home. This market represents c35% of Headlam revenues, and I believe it is this threat, which is causing current negativity towards Headlam, and while the negative view may hold until say, a vaccine is available, everything has a price. Have we reached it? Work practices will change but I’m not ready to write off offices yet. The city has a roll. It’s where business interact, and young people like to be and be seen. Zoom doesn’t match it.

Likewise – I first looked at Likewise last year and felt that any challenge they offered was several years away. I’ve more to say on Likewise so I’ll put together a follow-up post.

Retail Investor communication – it stinks. Results calls are not open to retail investors. I’ll be contacting IR. I thought I’d done this previously, but as I write this, I now remember it was another company I contacted.

Poor liquidity - As you point out, there are large institutional shareholdings. The top ten account for >80% of shares. The tenth holds 5% so I wouldn’t be surprised if retail accounts for <<10%. Two obvious impacts, first, an institution offloading will be tough to absorb – typically institutions exchange holdings off market because of this illiquidity, second, relatively low volume retail trading can have a significant impact on the share price. Either could be behind the recent sustained slide in the share price.

Share price – when I opened my position at c300p in May I felt the price wasn’t cheap but that the low was in and I felt there might be a boost when shops opened – I was wrong on both of the latter points. But I haven’t added since. I’ve learnt that when the market disagrees with my assessment it’s best to be cautious. I’ll look to buy any rebound. While my conviction has tempered from two months ago, it still largely holds.

A long-standing lament on this board has been the absence of share buying by the Dignity board. Something I’ve shared in the ten years I’ve followed Dignity.

The directors have done very well out of the annual and long-term bonus they awarded themselves each year. Typically, selling the shares as they receive them, with Mike McCollum (CEO) and Steve Whittern (CFO) leading the way.

Hopefully, the currents issues with the CMA, which are still to be resolved, are well known to anyone following the Dignity story. Last April Mike McCollum left Dignity. I took this to mean that he felt his golden goose had laid her last golden egg. I never believed being CEO of Dignity had been a very demanding job. The only significant competitor was the CoOp! I guess he found dealing with the issues thrown up by the CMA investigations too much.

I was slow fully exiting from the turn in 2017, but I had done very well over the years and have kept a watching brief since. Early this year I came back in with a small stake – too soon as it happens. The share price held up for a time before too succumbing to the economic impact of CV19.

Anyway, with other opportunities catching my eye, Dignity dropped off my radar. I did pick up on MC leaving, and some share purchases by the new chairman installed late last year, but getting to the point, of this long winded post, I missed the recent purchase by Steve Whittern (CFO).

I think this is significant. The terms of the 2020 LTIP award had been delayed until after the CMA report, which had been expected this summer but is now is likely to be 2021. The 2016 & 2017 LTIP awards lapsed without any bonus being awarded. I felt that SW would be waiting until the LTIP gravy train resumed but I’ve just noticed that he’s jumped the gun with the purchase 15th June of 50K shares, bringing his total holding to c166K. Was this the first time he had put his hand in his pocket to buy Dignity shares? If so, it could be significant. He is the CFO after all.

SW typically awards himself - renumeration committees are a joke – about £300K value of LTIP per year. Last year it was at 633p. No doubt he’ll award himself a similar amount after the CMA update – he wants to get the price right – but I find his recent purchase interesting in light of the CMA delay impacting this year’s award. I hope Phoenix, with a 29% holding, are keeping an eye on future bonus awards.

JepGambardella, I notice you posted early on the 16th, so I’m guessing you spotted the 5pm RNS. I monitor the 7am releases and often miss the later ones. You’re obviously on the ball.

Dignity is back on my radar.

Ben..., you say, "they took the furlough money which intern means they can’t pay a divi for probably couple three years."

I don't believe any such restriction on dividends exist, but I'm happy to be corrected. Do you have a source?

That said, I would not expect a dividend from GFRD for quite a while and it won't be substantial if they maintain their guidance of x3 EPS cover.

They are targeting 2% margin for the next financial year starting July 2021. If achieved that would equate to a dividend of about (((£1300m*2%)-£13m)*0.81*0.33)/117 = 3% dividend yield at today's price.

That said, I think that target is dead, or at least delayed a further year. No guidance provided yesterday in spite of the claim that "productivity is close to normal". At the Sept finals report I'm expecting a kitchen sinking by management ahead of their own LTIP awards.

That's my bearish case - I've decided to stay on the sidelines until another look after the Sept update - but I recognise some brokers are more bullish. I don't currently take account of any future orders coming with the Boris infrastructure boom - perhaps that's the bullish case - but the way I see it is that existing contracts were established pre-covid and I wonder how these will be impacted by the costs of the covid overhead, which would dampen outcomes for a while.

cadellin, I assume from your post that you used Mercado distribution centers, which you are recommending.

Do you know that Mercado is one of the trading names for the Headlam Group?

I'd be interested to know why you tip Mercado?

The trading update doesn't offer any guidance for the new financial year.

I missed the opening 15 minutes of this morning's call. Was any estimate of month end cash for the next six months given?

I'm sure analysts would have asked the question in Q&A.

Hi hitman1a, I take some interest in oil sector commentary, but I don’t attempt to translate that into an oil price forecast for the same reason I don’t day trade stocks – I’m not very good at it.

Better informed people than me are currently forecasting $43 average Brent to the end 2020, and averages of $48 and $53 for 2021 and 2022, respectively.

I’ll work with that until next month’s forecast, which I predict will be a near term price close to that day's price, with a glide path to a higher price.

The last three pages, marked page 166 - .
Glossary – Non-GAAP measures

DaKen, I don't think the picture is as dark as you paint it. The end of month cash balance captures the current asset/liability equation better than a twice a year balance sheet snapshot.

With all the movements around the 'demerger' I found the Dec 31st balance sheet tough to interpret, and I'm normally pretty good with that stuff. Sadly, I don't expect an update on the balance sheet in tomorrow's update. But we should get an estimation of the average month end balance. Did they manage >£100m they guided for the last 6 months? What will they forecast for the next 6-12 months? Key is that it remains positive.

CV19 impacts?

I'd guess they'll update on the order book too, but forecasts of year end revenues and margins will probably be withheld under cover of CV19 uncertainties.

I'm not currently invested here but keen to check out tomorrow's update.

Hi Pelle, be careful of relying on the $288m of cash and available facilities reported end 2019. Only $144m was available cash, but still useful if a few 10s millions needs to be found at short notice.

Check out the back pages of the annual report - it has some useful and easy to reference numbers.

The FT article only had an excerpt from the Jefferies note - we know at least 3 graphs were missing (exhibits 3-5) - it didn't mention decom. The broker note might have.

oopps, I'd forgotten about those $31 swaps which I previously estimated as a c$24m loss at a Brent price of $41. And there were heavy hints that The Dons (2-3Kbopd net) may soon be for the chop. Offset by c$5m on the Oz $52 hedges.

Significant but probably not game changers.

I agree, a top heavy board. Likewise were flagged a year or two back. I recently took another look at their metrics and came to the view that going into the CV pandemic they were relatively small if potentially fast growing, with higher relative debt. I wondered if the business can support that many executives. They'll need significant investment backing to challenge Headlam's market dominance. Perhaps they'll get it.

But yes one to watch. As I recall traded on a secondary market.

Maxandmonty, thanks for the heads up.

Hitman1a, I too wondered about Jefferies workings, but I now think they are simply approaching it from a different direction, perhaps because they want to apply the same format across their sector coverage. (I was particularly intrigued by their attempt to squeeze the vastly different activities into a single metric by assigning different multiples - I also have an interest in CNE. I thought it was a worthy effort.) But I wonder if you are confusing EBITDA with Enquest’s definition of FCF – hugely different metrics.

‘Free cash flow: net change in cash and cash equivalents less net (repayments)/proceeds from loan facilities. $/Boe based on working interest production’ This definition excludes PIK. I’m going to include it.
2021 PIK = 1.07*$68m = $72.8m. At 55Kboepd equates to $3.6 boe.
Add this to $27 boe guidance = $30.6. Jefferies has $31.2 for all in costs.

I interpret the ‘sales discount to Brent’ as Jefferies way of capturing the Gas/Oil mix. For ENQ they have $4.3 boe. In the 2019 AR the crude oil price is $64.2 and the blended price $59.2 (excluding hedging), a difference of $5 boe. In 2019 gas sales accounted for 14% of total boe sales. This is almost entirely down to Magnus and in large part to the resale of used gas purchased for injection, which reduces this year and next as contracts expire. I think the Jefferies number is ‘ballpark’ but probably on the high side.

However, this nags at me. Like most here I’ve equated ENQ breakeven points to the price of Brent. Perhaps a more conservative assumption is the achieved blended price. I’ve decided to take this approach and added $3 (Brent discount) to breakeven guidance (and PIK) for $39.1 (2020), $31.1 (2020H2) and $33.6 (2021). Perhaps the interims will lead me to revise these down.

Warning – some dodgy assumptions coming up.
Jefferies has 2021 EBITDA $410m and a 3.5 EV multiple equating to 18p. I’m assuming this is an end 2021 metric. Therefore, EV = $1,435m = Mkt Cap ((18/13.6)*(£230m*1.25)) + Net Debt
Net Debt = $1,435m - $380m = $1,055m. A debt reduction over two years of 1,413-1,055= $358m.
Using Jefferies $4.3 discount to Brent, FCF (net debt reduction):
In 2020H2, 54Kboepd * ($43-$32.4 * 182 = $104m. Minus H1 PIK = $70m.
In 2021, 55Kboepd * ($47.5-$34.9) * 365 = $253m. Total = $323m. (Note the $358m above).
My assumptions:
I’m using the current $43 oil price as 2020H2 Brent average
2020, I expect 66Kboepd for H1, guidance of 60Kboepd for full year points to 54Kboepd for H2.
2021, I knocked 5Kboepd for field declines against a better Magnus number, resulting in 55Kboepd.

Using my $3 Brent discount, I get:
In 2020H2, 54Kboepd * ($43-$31.1 * 182 = $117m. Minus H1 PIK = $83m.
In 2021, 55Kboepd * ($47.5-$33.6) * 365 = £279m. Total = $362.

Bottom line, add in the c$104 extra cash saved by PIK to Oct 2021 and the RCF* $476m call is effectively met.