Member Info for LorenzoLynch

Accipiter,

That is almost certainly a factor. Boring stocks never reach silly P/E ratios, yet sexy stocks often do. Lots of clueless and emotional investors out there. Also, tipsters play a big role in this. I imagine MOON has been tipped in several investing articles

FlyingDave,

Can you please refer me to the RNS which stated that PRD was fully funded for ‘extended rigless testing’? I can’t recall reading this and I’ve just been through the last few RNS’

BillyRayVal,

I already appreciate your posts and you seem like a very intelligent man, but I must say, I think putting 100% of a SIPP into one stock (let alone a stock in this sector) is one of the craziest things I’ve heard from an investor. I’ve read several books about Warren Buffett, including one which summarised all of B.H’s annual shareholder meetings and I have never heard the man say anything that suggests investing 100% of your capital into something would be a remotely good idea. According to W.B, investing rule #1, is that you should avoid losing money. Rule #2 is ‘never forget rule #1’. Even going all-in on a company like Apple is high-risk imo; and that’s a company with an exceptional moat, global exposure, lots of cash, addictive products & services etc.

While Buffett, like myself, does not believe that diversification alone reduces risk (it mostly just reduces volatility), his focus is always on ensuring ‘security of principle’. With PRD, the downside is almost limitless imo (I haven’t calculated the absolute downside here), so it appears to fail this test.

I can’t recall the name of the book I’m about to mention now, but it’s a fairly well-known investing book which makes a lot of references to W.B. It contained a study on diversification and potential returns. The ‘sweet spot’ was around 6-8 stocks. Below 6 saw a significant increases in risk. Above 8 saw almost no decrease in risk for each additional stock.

It’s obviously up to you what you do with your money. This is not financial advice. I’m just explaining why I typically own 6-8 stocks. Humans are not infallible. Even with all the confidence in the world, with investing, I think it is prudent to always exercise some level of caution.

I have every faith in PRD btw, but risk (especially in this industry imo), as I understand it, can only be mitigated to a certain degree.

Olderandwiser,

I can’t speak for PG, but taking into consideration what he’s said in previous interviews, I think he’ll drill MOU-5, as a success case here would result in us receiving a a much greater sum for the sale of the license area (perhaps double… not a bad return for 8-10 days drill and some testing). An MOU-5 success would also likely attract bigger players as the theory that the whole license area is gas charged becomes much more plausible. As for testing for flow rates, I think this will depend on what discount buyers would require for a sale based solely on volume (I know I’d want a sizeable discount if I was going to take on that risk).

What’s the quickest and easiest way to monetise the whole license area? PRD doing placings, drills and using cash flow from a CNG operation, or a big E & P firm coming in, drilling and testing at pace, with us receiving royalties from them? For me, the latter is a win-win situation, and enables PG to crack on in T & T. It’s certainly what I’m hoping for.

All in my honest opinion.

No experience investing in this industry, but this is the likeliest scenario imo.

Debsjack,

While your question is addressed to Strictly, I must say that this often is on my mind. The British housing market, to me, seems like it’s in a never-ending bubble. I think it’s a cultural thing tbh. It’s simply where British people like to park their money… for now. FTSE stagnation is probably partly caused by this. In China and Italy, they typically spend a lot on fashion. In Singapore, investing is very prevalent (according to what I’ve read). The list goes on.

Where I think things will change from here onwards, is simply due to mortgage rates increasing. This isn’t just going to have an impact in the short-term, it will also suppress prices in the medium-term imo. That said, there will be an opportunity for extra coin to be made for HBs when interest rates start to come down again. As is the case with stocks in any given industry; there will be times to buy, and times to sell. Timing is key, imo. For now, my intention is simply to hold for the recovery to fair value, but that’s because I’m a contrarian. As for house prices increasing in real terms… well, that’s an incredibly complicated economic matter, but the question to ask is simple: where will the surplus wealth come from? Artificial intelligence could do it eventually, as other goods and services will become cheaper, but then you have unemployment on the other side of that equation. There are many other things to consider, of course: corporation tax, labour costs, material costs, stamp duty, the RDT, skilled (and well-paid) immigrants arriving here, HMO’s, the rise of alternative living etc. The number of variables to consider are seemingly infinite.

Nigel Haemorrhoid Goblin,

In other words, you don’t have the nuts (risk appetite) to invest prior to the completion of testing? That’s understandable. Personally, I’m glad I was loading up at 5p-6p, as I think the reward for taking such a risk could be monumental. Reckon you’ll get a good entry if the Guercif results are stellar? Good luck to you, but I can’t imagine there will be much sales volume if that materialises. That said, in a success case, maybe Greasy Fred will sell you his ‘free’ shares for 25p a pop, assuming his price target doesn’t move again?

All imho. DYOR.

This is why I hedged my bets by having skin in the game, whilst being able to average down in the event of capitulation. This should be a lesson of humility to all, not just the bears, as the inflation data could have been very different today. Nobody can time the market to absolute perfection. The full affects of rising rates haven’t been felt yet, so I think it’s a bit premature to assume that it’s only sunshine and rainbows ahead, but I can see less potential downside in HB’s than I did previously, that’s for sure

Myself and my friend (also invested here) were starting to have doubts about the success of MOU-4 last night, but we agreed that even if gas shows were likely in the MOU Fan alone, we would have been content. It was a glance over GRH’s and Keith’s recent posts that alleviated our concerns. We were staggered at the level of confidence both of them had. Truly unwavering. In contrast with what I said yesterday, it is now my opinion that the potential upside here (especially realistic upside) has increased significantly, and risk has been greatly reduced during 2023. I’m in utter disbelief at what appears to me to be a monumental difference in share price and potential value. I’ve never seen anything like it. I genuinely just questioned whether I was actually awake or still dreaming.

Do your own research and be aware of the risks, as always

Watching,

De-ramping is never a concern for me. In fact, I welcome it as I like to see my stocks being heavily scrutinised, just in case I have missed something, and I love an opportunity to top-up (although I’m too heavy here as it is, so I’m sitting on my hands, for now). I am, however, let’s say, rather suspicious about what occurred on Monday in regards to the SP

… quite essential characteristics when it comes to investing, if you want to be successful.

If the RNS stated that there were gas shows at MOU-4, would that mean that we’re definitely heading to a £10+ per share special dividend? As it didn’t, does that mean that we don’t have any gas that will flow commercially in the entire licence area? We simply do not know what resources we have, but we should start to get a good idea soon. Either take the risk, or don’t, it’s really that simple. If any of you are aware of any risk-free potential 100-baggers, please enlighten me.

I can’t recall any of the alleged ‘rampers’ on here saying that this is risk-free venture. On the balance of probability, I’m more than happy to hold onto my shares, and I wasn’t going to sell at c.15p, so it doesn’t bother me in the slightest that we’re around 10p now. The reality is quite simple imo: POTENTIALLY, there is huge upside here. In the 2 years I’ve been invested here, that hasn’t changed. Not even for a minute. Likewise, imv there has always been a significant level of risk, due to the nature of this industry, and that is, imo, reflected in the market cap.

In my opinion (which has little value to me, let alone anybody else, due to my lack of knowledge in this field), risk appears to have fallen since I first invested, whereas the potential upside has not. I think it’s pointless to speculate too much in either direction at this stage, although theoretical valuations are essential, otherwise how can you balance risk vs reward?

As for the RNS, I seem to have a different interpretation to most on here. Could it have been more informative? Probably, but I think a lot of people are overlooking the information that was released.

Lastly, I must ask, are any of you who speak with such certainty risking 80%+ of your net worth shorting PRD? And thank you for showing so much concern in regards to my financial affairs and the finances of others, but a bank transfer would be more appreciated, and certainly much more useful.

Thank you all for your contributions.

Onwards and upwards, I hope.

KeithOz,

Fantastic post. Clear, concise and incredibly useful. Thank you.

I don’t want to get ahead of myself here, but I’m new to this game (always said I’d never touch an exploration company, but risk vs reward here was too exceptional to ignore), so there’s a question I’d like to ask yourself or somebody with similar experience in this field:

If, for example, a sale is agreed at £5.50 per share + 10% royalties for the remainder for the entire licence area. Assuming that a £5 special dividend is announced, what could we likely expect the share price to do in this instance? I wouldn’t know where to start valuing PRD in such a situation, but I’m wondering if the market is typically exuberant when deals like this are struck, or if such royalties are barely priced in (say, £6.50 per share). I know this is impossible to answer with accuracy, but I’m assuming either yourself or somebody else on here has witnessed something similar take place over the years

DarkEnergy,

Bellway accounts for 11% of my portfolio and Redrow accounts for 9% of it. I’m 5% in the red on BWY and 7% in the red on Redrow. I’ll be averaging down along the way, with room for me to increase my holding in each of them by 50%. I’ll be selling them both at a p/e of 11 on underlying earnings, once earnings have recovered. Well, that’s the plan, but many other factors will determine exactly when I sell. On reflection, I should have waited a bit longer to buy so aggressively, but it’s easier said than done and the lower these go, the more money I’ll eventually make. I like win-win situations. How about yourself?

FFO,

There are a lot of Venezuelans who would disagree with your view on cash in a hyper-inflationary enviroment, but yes, this isn’t relevant here, I was just giving an extreme example. Commodities and precious metals are the best assets to own in such a crisis. With land, you can sell it for x amount of the new currency, for example, gold. The relative value of land, remains… with cash, it doesn’t. A benefit of having a strong land bank is that as land prices increase during the next housing cycle, certain housebuilders won’t need to buy at those elevated prices. Personally, I’d like to see my HB’s convert a significant portion of that land bank into cash once the housing market is on the rise again.

20% of my portfolio is HB’s, so I’m in full agreement with you on the robin’s analogy. I understand what you’re saying on the cash flow front. Like Buffett, I also only invest when the upside is incredibly obvious. I think where me and you disagree, is that I see BWY’s surplus land bank as future cash flow. I’d rather own a company that only has to worry about developing houses, then own a company that needs to buy land and then develop. Balance is key though

Strictly & FFO,

I just took a much closer look at the inventories of both PSN and BWY. It’s an interesting read. Most of the inventory for both companies is simply land, as you pointed out FFO. The value of PSN’s ‘work in progress’ equates to less than 4 months of revenue by my reckoning

FFO,

While i agree with you on the DCF front, theoretically, I think it’s pretty ridiculous to assume that you, me or even Buffett can make accurate an accurate DCF, especially with housebuilders… interest rates, corporation tax, residential development tax, stamp duty holidays, material cost inflation, skilled labour shortages and so on…. Good luck inputting accurate data into your DCF. I’ll continue using a p/e on underlying earnings. To summarise, nobody knows what a business is truly worth. My concern is what price I’m buying at, and what I’m likely to be able to sell at. That’s all that matters. Them city boys in London love DCF models and EV/EBITDA etc, yet with huge salaries, bonuses, long shifts, copious amounts of Peruvian coffee (and something else that’s grown around that part of the world), and extremely expensive kit on their desk, they barely beat the S & P 500. I’ve never had such a problem and all I have at my disposal is a kettle, mug, pen, notepad and an ageing smart phone

DarkEnergy (something that really fascinates my mind),

I wouldn’t expect it to remain static at £25, but I think that’s a realistic ceiling (I’m always conservative in my valuations though). £25 will be the new £30, if you will, due to the tax increases. I have a better grasp on what I believe the ceiling to be for BWY though, as I’ve done much more research there. On a p/e basis, 11 seems to be the historic limit. Likewise, it doesn’t seem to exceed a p/b of 2 in a bull market. What’s interesting, however, is that in the past, this would give a narrow range of valuations, whereas today, the difference equates to around £9 per share. Might not sound like a lot, but that’s £1.1bn, or almost 50% of the current market cap. I’ll sell at the lower of the two, if I’m still holding BWY. I imagine I’ll own PSN as well on the way up

FFO,

Of course just looking at P/B is an oversimplification, but I’d much rather have assets than not, especially at a time like this. After all, owning assets is the very foundation of investing, is it not? Money = numbers on a screen. In a real crisis, say, the collapse of the British pound, what would you rather own? Land and houses, or cash during a time of hyper-inflation? An extreme example, but as I’m 30, the USD is nearing the end of its life, and govt debt is becoming very difficult to service, I might live to see it, although I expect the USD to be replaced with a Fed-issued digital coin before this arises (a new form of the gold standard). Book value limits downside, and with HB earnings and share prices only heading one way, that’s what I’m focusing on. In a bull market, I agree, it’ll mean very little (the data proves this), but look at what’s happened so far… PSN is down 70% from the recent peak, whilst BWY is down 47% . Btw, I’m assuming that BWY will convert some of that inventory into cash and there is always the option to borrow, as the company is so asset rich

I fail to understand why they made such a decision though with what was on the horizon with the economy. Also, I thought the idea of buying assets in distress was so that they could be acquired on the cheap. Neither of CRL’s were particularly cheap. Then they gambled on the share price (in regards to the payments structure) which was costly. A real shambles, especially considering that Emma Hardy is a luxury brand, and we were potentially on the brink of a recession. The management team are usually exceptional, imo, but I’ll never understand their logic with the acquisitions. It seems like they were desperate to add some revenue growth and reach their targets, but by ignoring the obvious, they’ve hindered progress. It looks like CRL are over the worst in terms of inflation, I’ll agree with that, but the interest rate increases are going to hinder progress moving forward. Another year of stagnation ahead I think. Long-term potential remains, assuming that the CEO doesn’t retire and doesn’t waste a small fortune again

It looks like another there’s another painful year ahead with interest rates likely to continue rising and cost inflation remaining high. As demonstrated by the decrease in revenue, CRL have failed to pass on these additional costs to some of their customers.

The timing and payment structure in relation to acquisitions looks worse as time elapses. This stands out to me from the preliminary results: ‘A 1% increase in bank base rates would reduce Group pre-tax profits by £114,000 (2022: £75,000)’. I think it’s highly likely that we’ll continue to see the BoE increase interest rate rates for the foreseeable future, thus I can’t see a return to net profit on FY24. Once again we’re told that the full benefit of the acquisitions is to be felt soon, but I am starting to have doubts about them

Several of you on here have stated that you believe that PSN will be worth £30 per share once the housing market has recovered. Can one of you please show me how you’ve arrived at this conclusion, because I’d expect it to peak at £25 per share. I understand that the SP was over £30 recently, but that was before the residential development tax and wasn’t corporation tax 20% at the time?