Member Info for Megla

Baysil, nothing complicated, just current share price minus the impact of paying the divi.

Current price of 192p, minus the 75p, so would be 117p.

Obviously the market will adjust the share price on the ex dividend date, but no one knows what the share price will be the day prior to this date.

All I’m trying to do is understand is how this will play out. So if the share price does stay the same as now (192p), and the market adjusts efficiently based on the divi, the company would be buying back an absolute mountain of shares at 117p with the $200m allocated.

Maybe the share price will run up before the ex dividend date?! Maybe the share price will stagnate, or even drop due to tax implications for potential holders/buyers?! We’ve already seen the CFO sell for personal tax reasons, so wouldn’t be a huge surprise.

Regardless of what happens, I do think the main buyback will resolve the discount to NAV. The market is all about flow, and the company is going to be a huge buyer. My shares will be available for them to buy, but only for what I consider I reasonable valuation.

Not sure about the reasoning for this additional £20m buyback, but welcomed nonetheless.

Share count will be reduced to 490m following the buyback, so the $500m divi would be $1.02 or 75p per share based on the current exchange rate (1.35).

Share price post divi adjustment would be 110p, which would allow the company to buyback 133m shares with the $200m buyback, or 27% of the company if the price remained static (it won’t).

MRC, I have questioned the deal at length with investor relations, they’ve not been able to convince me it was a good deal so for me it isn’t a company I’d want to be invested in long-term.

Absolutely agree that pulling out of the deal would have been poor form, but it still doesn’t change my opinion on it. It’s hard to swallow give the mountains of FCF that assets would have produced in this price environment.

That said, net year-end cash will be $1100m (post India)

Divi is 73p at current exchanges rates, so if the share price adjusts from 185p, the company would be buying back stock at 112p per share, so 130m shares (it won’t happen at this price).

Rough valuation post divi & Buyback $400m net cash, $340m Egypt, $150m for the other moving parts (earn out consideration mainly). Total value pst shareholder returns $890m or £650m, which divided by the theoretical new share count of 370m would be 176p per share.

Obviously it won’t happen like that, and I fully expect I’ll get a chance to sell for what I consider a reasonable valuation at some point, but does suggest to me that current share price is undervalued.

All imho of course.

But just to emphasise why I’m not over the moon with the company.

With the deferred consideration of $35m for Waldorf, the cash handed over on completion of the North Sea asset sale would have been about $18m. This was for 19k of tax free flowing barrels that were producing FCF of $22m a month with oil at $80+.

Utter madness in my view.

I’m actually quite positive on the short-term prospects for the share price, I just don’t sign-up to the £3+ a share that some seem to think is possible. When this is all done, the company’s only meaningful assets will be in Egypt, which due to the tax rates, capex requirements and political risks, isn’t one for me. But each to their own and all that.

Payment terms on the North Sea earn out consideration is half year, so will would expect to receive 2021 payment mid 2022.

Hard to be a staunch holder when the company gives away tax free flowing barrels at $80 oil

Soft target when the board give away 19k of flowing barrels for 2.5 months of FCF.

Anyone holding this after the divi/buyback is certainly brave.

Ant, for the avoidance of doubt, I’m talking about the year-end net cash position, so although debt important to understand the makeup of the balance sheet, it does mean it can be excluded from these calculations.

North Sea FCF was $90m between H1 end and the completion of the deal, the final consideration was $53m, so $143m in total. There is a question mark about the $20m H1 CAPEX refund, but that’s why I posed the numbers to stimulate debate. There is no other cash from the North Sea apart from the earn out consideration, which I’m sure won’t be paid by end of year, but have included anyway.

I do not recognise the number you’ve used for Egypt ($302), could you please pinpoint in the relevant RNS for me? “The acquisition value, which is subject to completion adjustments, is US$323 million net to Cairn” This was taken from the RNS on 24th September.

I’m not aware of any imminent cash from Senegal?

I’ve guessed at a small amount of FCF from Egypt, it might actually be negative FCF based on the high CAPEX guidance for H2. It definitely won’t be significant.

Basically, I don’t believe we’re trading above net cash, unless I have something horribly wrong. But again, happy to be corrected, especially as I own the stock.

Current market Cap £952m
Yeah End Cash = £930m

Calcs:

H1 Net Cash = $341
-$323m Egypt
+$90m FCF North Sea Assets (H1 end to deal completion)
+$53m North Sea Asset Sale (although $35m is deferred)
+$50m 2021 North Sea earn out consideration - No idea what the payment terms are
+$20m FCF Egypt (total guess for 3months)
-$25m G&A etc

Yeah end net cash $1266 or £930m (1.36 exchange rate).

Company about 20% undervalued in my view.

Ant, what cash position should I be using if not from the end of H1? Please direct me to a different update.

North Sea cash contribution is 90m that I've included in my numbers, see the 2nd of November RNS.

What numbers am I missing?

G&A was $24.6m in H1 2021, I've just used the same number.

Please produce your own numbers so we can compare.

The company is actually trading at a small premium to my rough calcs for year-end cash. Obviously some moving parts, India may not complete by then and we won't have been paid the earn out consideration, but it gives an idea. Happy to be corrected if I've got something wrong.

Current market Cap £952m
Yeah End Cash = £930m

Calcs:

H1 Net Cash = $341
-$323m Egypt
+$90m FCF North Sea Assets FCF
+$53m North Sea Asset Sale
+$50m 2021 North Sea earn out consideration - No idea what the payment terms are
+$20m FCF Egypt (total guess for 3months)
-$25m G&A etc

Yeah end cash $1266 or £930m (1.36 exchange rate).

Company about 20% undervalued in my view.

KingSuarez, don’t forget the humongous tax bill we’ll have next year (40% tax rate).

Net cash probably around £180m at 2021 year end, so I do not believe it’s possible to get to COH greater than market cap, even by the end of next year, never mind April 2022.

NewKOTB,

Would you mind sharing the figures you used to reach your CoH greater than market cap in April 2022 statement?

It seems massively off the mark, even with the current gas prices, but maybe I’m missing something.

Market cap in dollars is about $730m, so cash would have build by $630m from H1 end, which doesn’t seem possible based on the forward curve and taking the midpoint guidance for 2022 production.

It’s a forum to discuss the stock, hence the questions, I won’t engage with your drivel again.

So no thoughts at all? No comments on why a £3+ valuation?

If the company is worth £3+, why isn’t the share price closer to that target?

I think 250p is more reasonable, $1.25bln of cash, $350m Egypt, plus another $150m for the earn out consideration and other moving parts.

I would assume the market is still pricing in some risk with the Indian tax dispute until the money is in the bank. With a fair valuation only maybe 20% (?) away from the current price, maybe some folk think the risk reward isn’t there now?

I wouldn’t say somethings a miss, I just think the deal is terrible in the current price environment. Obviously the board didn’t know oil prices were going to go crazy, but I do think there was a element of face saving by recommending it to shareholders.

I know I keep repeating it, but these were tax free producing barrels, the net back is incredible with oil in the 80’s. At the end of next year, the company would have more money in the bank keeping the assets than by selling them, which speaks volume.

As I say, I’m over it now. I disagree with the company’s strategy so will be selling, but only when the valuation gap has closed following completion of the Indian tax saga.

Thunder, I find it quite surprising the you’d reference the decomp liability (which was only $150), without also quoting the amount of FCF the company would produce over the remaining life of the fields. Any balanced analysis would of course include the two. Maybe it’s your view that’s ‘simplistic’.

As for your risk comment, this is an oil & gas company. If you can’t hack the risks associated with oil & gas, then maybe you shouldn’t be invested in oil & gas. The irony of you not wanting flowing barrels in the North Sea but you’re still happy with future North Sea developments is almost comical.

The deal stinks in the current price environment, even allowing for significant natural decline rate the company would have produced roughly $400m of FCF over the next two years based on the forward curve. If you think giving that away for $53m and some earn out consideration is a good idea, then that’s your call, but I think it’s utterly crazy. I’d take tax free flowing barrels in the North Sea over more or less anything else.

Anyways, I’m not overly fussed, the deal is done so I’m out of here once the India cash arrives and the buyback commences. There’s no debating that the company is significantly undervalued (assuming no hiccups with the tax rebate), but once that valuation gap closes (which I expect it will), the company is left with some producing assets in Egypt. Not the most appealing of prospects given the associated risks, but good luck to those that think it is.