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They aren't even remotely comparable.
1. Amigo was under the spotlight for their own internal failings. The current FCA review for motor finance will impact many motor finance providers, not just Close (if the review actually rules that they have to pay).
2. The financial position of Amigo and Close are worlds apart. For context, if the FCA review ruled that Close had to pay £200M, they could quite easily do this and carry on business as usual. Again, for context, CET1 capital at FY23 was circa £1.3B. Assuming they earn £0 in FY24 (unlikely by the way), they would still have CET1 capital of circa £1.1B.
Chelmochaser
Share price movements have absolutely no direct impact on a company's ability to pay dividends.
Karv1
Given the situation with the FCA investigation is still unclear, and there won't be any further update until September (I think), I would be surprised if CBG cut their dividend for FY24 without having any idea of potential implications. That being said, if the worst possible ruling is made by the FCA, I wouldn't rule a dividend cut out for FY25, as they will wish to preserve their CET1 capital ratio.
However, I think the long term view has to be taken here.
Fair comments.
On the depositor point. I have been giving this a great deal of thought actually, as we watched first hand how quickly a bank can unfold due to panic last year with the collapse of First Republic for example.
However, they are chalk and cheese in my opinion. First republic was a pure play retail bank, with a large proportion of its depositors in excess of the amount the government would refund in a case of default. In addition to this, are large amount of their deposits was made up of easy access accounts. In Close Brothers case, only a small amount of their deposits are available on demand. The majority is locked in time deposit accounts, so in the event of panic induced by the media, I honestly don't see how depositor flight could cause the bank to collapse, as the vast majority could not pull their money.
Group CET1 equity at FY 23 was £1.31B, which equated to 13.3% capital ratio. This puts risk weighted assets at approx. £9.850B.
Working on the assumption that the company earns £0 in FY24 & FY25 (which I would think is extremely unlikely), risk weighted assets remained static, and the reported worst case scenario unfolds (CBG on the hook for £200M) in relation to the motor finance investigation, CBG would still have a CET1 capital ratio of 11.27%, which is still well above the minimum requirement of 9.5%.
I am scratching my head at the decline which has unfolded, but I can't help but think this is extremely oversold at £690M below the FY23 CET1 capital.
Another thing to add to the below is that I am also conscious the company has recently started putting a lot more emphasis on pursuing housing disrepair over credit.
I get that this makes sense as the working capital cycle is shorter than that of a credit hire case, however the skeptical part of me wonders, is this in anticipation of a detrimental change in credit hire case law?
So I have just recently stumbled upon this company and have been studying it for the past two weeks.
At first glance it appears like a steal, and I am fairly satisfied that realistic impairments have been applied to the debtor books shown in their accounts. Their cash collection over the past 5-6 years would also show a good track record of not over estimating debtors.
However, the one thing holding me back from dumping a fair chunk of my net worth in to this is the lingering possibility of a change in case law for recovery of credit hire. An extreme change on this front could effectively wipe out the company's ability to recover the outstanding debtor book.
Does anyone here have any input on this front? I have done a fair amount of reading, and I can't see anything to indicate that there is a statutory change imminent, but the sharp fall in share price makes me wonder if some people know something that I do not.
Https://uk.news.yahoo.com/uks-petrofac-looking-sell-assets-072415308.html
As per my previous posts, to the people who thought I was scare mongering to capitalise on a falling share price, I wasn't. Merely voicing my views on their financial position based on the readily available published information...
Janbo
I have no inside information if that is what you are asking. In so far as 'guess work', I wouldn't necessarily agree. My comment about the de-leveraging being required isn't guess work. The writing is on the wall as far as that is concerned based on the published information that is readily available.
Even if it does transpire that they have secured cash advances and avoid any further write-downs, I still think they will need some form of de-leveraging as that will only be a short term fix.
Not looking good folks...
As mentioned in my previous posts, some form of de-leveraging is badly required. Given how aggressively this is falling, my feeling would be that the current situation within PFC is as follows:
1. The cash advances from new contracts haven't materialised, or there have been further negative writedowns on historical contracts
2. This has resulted in the banks triggering their covenants
3. The board are currently scrambling to secure alternative financing
Or... The BOD are the coolest customers on the planet and are just going to remain silent right through to 20/12 and then announce 'Everything is fine, I don't know what you were all worried about'. On a serious note though, I would be shocked if that turns out to be the case. This sort of fall without any sort of shareholder communication screams to me that there are complications behind the scenes.
PFCvetran
Technically speaking, from a balance sheet point of view, the company is already at zero. Any price an investor pays currently is effectively goodwill if you like, as it isn't based on current EPS, nor is it for the net asset value of the company (as this is negative as of the last reporting date).
With this in mind, any investor buying in currently will be doing so with the strong belief that profitability is imminent, and that the company can weather the storm from a cash point of view. Whilst we can all say with a reasonable degree of confidence that the profit situation is likely to improve over the next two years due to new contract wins, the cash situation is still very unclear.
Due to complete lack of communication from the board, it is completely open to speculation whether or not the company has been able secure cash advances from new contracts, or if a capital raise / administration scenario is likely. I firmly believe this is what is impacting the share price currently. I appreciate everyone is going on about short positions, but the reality is that if there was a clear picture on the current financial position, there potentially wouldn't be the same opportunity for the short sellers to exploit the uncertainty.
Speedygon
Agreed, I don't think they are going under, but... Their financial position is not in a good place. I would suspect that a lot of the cash generated from these new contracts over the next 1-2 years (at least) will be used to service their debt. As I have said before, I don't think another capital raise is out of the question.
Emerald Carrots
It is worth noting, Petrofac are abysmal at updating their website info, which I find very frustrating, as they are very quick to update on new contract awards. Their 'up to date' largest shareholder page can't be relied upon. They have J Hambro down as holding 5.31%, yet there is a regulatory filing on 31/07 showing that they took their holding below 5%. In addition to this, according to market screener, both Azvalor and Schroders have both trimmed their holdings down to 12.22% & 7.821% respectively (not entirely sure how accurate this is, but they show J Hambro as 4.027%, which would tie in with the regulatory filing).
Evanescent
As always, your input is underwhelming...
Please elaborate on how I was trying to sow doubt? If anything, I was saying that the current share price may actually represent a decent valuation to take a punt at. I was also seeking constructive feedback, which clearly you aren't capable of providing. It strikes me that your investment approach is 'Oh brilliant, new contract, the share price is definitely going to go up'. You are delusional if you think there isn't a lot of risk associated with PFC.
As mentioned previously, I exited my PFC position some time ago, however re-looking at it given the current price.
Assuming another capital raise is required, lets say £200M @£0.50 p/share. Lets also assume PFC can hit $4B in sales and an EBIT margin of 7% by YE 2025, which I reckon would translate to approx £102M of net profit ($120M interest, say 20% tax rate, and £0.80 to the dollar). With the current shares in issue this would equate to approx £0.195 earning per share, or 2.46x todays share price. Factoring in the above dilution, this would bring the earnings per share down to approx £0.11, or 4.36x todays share price.
Still a fairly attractive multiple, but are my assumptions realistic? This also doesn't allow for debt costs spiraling any higher.
Dogger69 (what a name by the way lol)
I would have to agree, debt for equity, or a capital raise are very real possibilities. I am not saying they are a forgone conclusion, but a very real possibility. I think total loss is unlikely, as to be fair future prospects for the company are very bright, and the BOD have a pretty good track record of finding solutions to overcome hurdles. The real question is at what cost to current shareholders this could be at?
DagenhamDave
I hear what you are saying with regard to the four points made. 3 & 4 in specific are a nonsense, and I dismay at anyone investing on this basis.
However, I wouldn't say there is something necessarily broken with the company. They are actually very good at what they do, and are highly respected within the industry. I think the contract wins over the past 12 months show this. Ultimately the decline in fortune (or share price) is mainly down down to them being banned from bidding on new contracts for a period due to the SFO, a general decline in oil & gas investment over the past 6+ years and COVID delays causing large cost overruns on legacy contracts. All of which have culminated in an insolvent balance sheet, which in my opinion, the market is now recognising in the current valuation. A lot will now depend on the next trading update scheduled for December...
Evanescent...
To confirm, I do not hold a short position in PFC, nor do I intend to. I have never shorted a company in my life.
I am merely voicing my opinion on the investment proposition. For me, regardless of the new contract run they are on, it is highly speculative with a lot of obvious near term risks involved. As I said in my first post, I think another capital raise could be a very likely outcome. If you are comfortable with the risk of further dilution at the price you invested at, then crack on.