Member Info for Megla

The last paragraph gives me some hope. The trade unions will certainly put pressure on the Labour Party if their crazy policy starts to result in avoidable job losses.

“Oil and gas continue to flow only when the mains supply of investment stays open. Without it, the flow dries up. Even existing oil and gas fields decline and need continuous investment to maintain production. Without investment fields will start to shut-in and there will be a domino effect in the interconnected and interdependent UK North Sea infrastructure. Significantly reducing tax relief for capital expenditure will rapidly and terminally accelerate the decline in UK oil and gas production. The trajectory of UK production will not be a smooth glide path. Oil and gas consumption in the UK will be reduced not one iota, but UK jobs will be lost, imports increased, overall emissions raised, tax receipts for the Exchequer actually reduced, and the country's security weakened.

What I describe are not just the arguments of oil and gas companies. They have support across the political spectrum including the trade union movement.”

The CEO will bring clarity on the dividend, but the company has already mentioned it’ll be a policy based on a percentage of CFFO after tax. What percentage that is depends on how ambitious the company is. Does the company want to build cash more quickly for a grand acquisition?! Or will they continue to return a very healthy dividend yield?!

The acquisition will be a matter of WHEN rather than IF, I only hope it’s for producing assets in a stable political and fiscal environment (not the UK).

Damofarl,

I’m don’t believe you understand the industry you’re invested in if you can’t comprehend the frustrations with Labour’s proposed policy.

We all know the windfall profits are long gone, therefore increasing a windfall tax just to win a few votes is populist politics at its very worst.

From an industry perspective, the proposed new fiscal regime will rule out new entrants. No one is going to risk their capital in a sector with reduced capital allowance and such a high tax take.

For those already operating within the sector, RBL’s will be reduced, access to capital markets will become ever more challenging and marginal fields (old fields with high capex) will be brought to a premature close.

Yes the industry will limp along and extract any remaining value, but jobs will be lost, investment will reduce and the tax take overall will likely end up being less than it could have been. This is all whilst Norway are powering ahead due to their incredibly generous capital allowances, or loop hole as Labour like to call it.

If the divi is cut following an acquisition, then it isn’t a very good acquisition.

I believe the divi will likely reduce (not massively) due to SQZ implementing a new policy of returning a certain percentage of post tax CFFO.

I hope any acquisition will be for producing assets (jam tomorrow won’t go down well) so the divi actually increases when it completes (post tax CFFO is higher).

Dickupham,

Some good points there.

Increasing the windfall tax at current energy prices is a crazy, but as you elude to, there might just be enough in the investment allowance and the supposed sunset date to provide enough incentive for developments to proceed.

I don’t actually believe the tax rates will ever revert, more likely it’ll change to a more simplified fiscal regime (not three different taxes) that is less generous than in the past, but less onerous that what Labour are looking to implement.

I have spoken to my potential new Labour MP at length about the planned changes, he doesn’t understand the implications. He just parrots the party line about energy giants and excessive profits blah blah blah.

The changes will definitely will definitely reduce CAPEX and bring forward decommissioning on older fields, so there is a chance that when this get scrutinised by the OBR the policy doesn’t actual give them the tax revenue they’re expecting.

For what it’s worth, I believe SQZ are a standout in the sector at this market cap. The dividend may well be reduced if they implement a similar policy to Ithaca (certain percentage of post tax CFFO) but it should remain attractive. I have the tax losses lasting to around end 2026 (Tailwind assets only) so only a few years of ridiculous levels of taxation until the EPL is supposedly repealed in 2029. The big risk is that Labour implement something that is retrospective but thankfully they appear to have dialled back on that.

I can’t really comment on JOG as I haven’t been following, but if the investment allowance does hold true at 84p, it might just be enough to push the development over the line.

ATB

That looks to be a fair summary from Zues. The only problem being that having to fund 16% of CAPEX when you only get 22% of the profits (less when we factor in certain costs can't be excluded from the SCT and EPL) isn't exactly a great deal for investors. Especially considering the windfall profits are long gone.

For SQZ, the combination of tax losses, limited decomp costs and a cash positive balance sheet still makes it an attractive option, but the politicians are certainly doing their best to kill the sector.

Does anyone have a FCF estimate for 2025 based on expected tax rate of 78% and the removal of investment allowance against the EPL?

Also, any detail on how long the tax losses will last based on the current forward curve?

Current thoughts are that SQZ should still be able to return a decent level of FCF whilst the company has tax losses to utilise (I’m aware they can’t be used to offset the EPL).

I’ll be digging into the numbers, but just wanted a head start if someone’s already done the number crunching.

Just the usual up and down due to Hibbett's Q1 results being a bit weak.

Q1 Trading very weak in the UK, but that isn't all that surprising given the state of the economy.

Guidance reaffirmed (I had hoped the lower end would have increased).

1bln of cash on the balance sheet.

Modest dividend increase.

Something for both bulls & bears in the update, feels quite neutral to me.

The point of the comparison was to point out just how ridiculous JD’s share price is, even with the current fundamentals. NEXT is a good company and caters for a different type of customer, it arguably warrants a higher earnings ratio. However, JD does not deserve its lowly PE just because it’s listed on the LSE.

The recent broker ratings are shocking and a symptom of how sick the UK market is. It doesn’t escape me that the these poor valuations/downgrades come at a time of meaty declared short position, but maybe that’s just me being the cynic that I am.

Part of me would like to see the company upsticks and list in the US. But why this would necessary really escapes me. Why can’t UK listed companies command valuations inline with US peers?!

It’s just a comparison, Sean. Nowhere in the post does it say they should both have the same valuations.

But whilst you’re being so dismissive of a simple comparison, would you care to explain why footlocker has a much higher PE ratio than JD? A PE ratio that is more in line with NEXT. Are footlocker not tailored to a narrow market?

PBT Forecast

JD £940m (middle of range)

NEXT £960m

PBT Following Hibbett Acquisition

JD £1075m (not including synergies)

NEXT £960m

Net Debt following Hibbett Acquisition

JD £0

NEXT £700m

Market Cap

JD £6.23bln

NEXT £11.59bln

Limited risk. Good strong profitable business that accelerates JD’s presence in the US. There are always integration challenges/costs, but as the board say, it should be earnings accretive in year one.

Current price more related to the expectation that interest rates will stay higher for longer due to US inflation. It’s more challenging to cut your own interest rates (UK) in this scenario due to the risk of importing inflation (lots of goods traded in USD). And of course the guidance for this year was pretty big, bit of wait and see approach being taken by the looks of it.

Lucan,

If folk are going to bash and trash the company then its going to get a response, that's kinda the idea of the forum after all. So please don't cry mate, you'd be a big loss to the board if you left, some might say your posts are second to none.

Your posts are second to none - funniest thing I’ve heard all day😂

Keep posting your fictitious trades mate, I’m super impressed.

Great work with your fictitious trade Lucan, I’m really impressed.

Sorry lordlucan, I only speak English.

lwhl,

not sure what you’re on about when you reference my ‘****sure economic predictions’.

taxes in the uk have already been cut - 4% reduction in ni, offset by the fiscal drag of not raising the personnel allowances.

energy prices are already back at inflated adjusted norms. see gas prices.

the us is doing well (albeit driven by unsustainable fiscal deficits).

the market is penciling in rate cuts for the second half of the year.

and uk pmi’s back in growth mode.

so they’re hardly my economic predictions are they?

Utterly clueless. UK coming out of recession, US still doing well. Interest rates to start falling this year, energy prices back to inflation adjusted norms. Taxes being cut to stimulate spending.

This is a good deal at a good time. Maybe you guys need to Google what earnings accretive means.

Why would the share price fall?! What did people expect would have happen with the billion of cash sat on the balance sheet?! Post deal, net debt will be minuscule, at year end, JD will likely have a positive cash balance.

This deal is earnings accretive from day one, with millions in synergies to be realised as the business is integrated. It really is no wonder the UK market is struggling with takes like this.