The next focusIR Investor Webinar takes places on 14th May with guest speakers from Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund. Please register here.
Mary
If you actually try to understand what I posted it is mostly positive. Someone posted that PFC needed $450m and I pointed out that this probably included RCF and guarantees. Hence equity raise limited to how much is required to free up this cash.
Does it not worry you that the shorters aren’t closing?
This can ONLY imply that they think they are going to be able to buy back via an equity raise?
Can all 7 of them be so wrong?
Please explain your thought process?
So you statement that none are closing is not just incorrect it's purposely misleading. You are a total scumbaggg
Shorters are at a record high? Yes or no?
There are seven of them? Yes or no?
How do you think they will close their shorts without a short squeeze?
Would you not view them starting to close now as highly positive?
I’m genuinely interested to understand your thought process!
Tuan
$450m could include releasing performance guarantees and extending the RCF topped up by non core asset sale. I’ve said before, the non core assets are small potatoes.
So how much cash do they need to raise to entice the RFCs to extend? This is the crux. Partial asset sales raise cash but reduce bond and RCF collateral. Ideally if they could sell an equity stake in PFC we would all be laughing except the shorters
But the fact that the shorters aren’t closing, that’s none of them, is ominous…. Are they all wrong?
I bought the bonds last year at about 60 cents because they are yielding 9.75% on par of 100 cents! Luckily I sold some at 75 cents last September when Israel crisis blew up. Bought some more at 40 cents a month ago.
I don’t want a D4E because I want the income. My dream result would be a takeover by a much larger player which could see my bonds trading at par of 100 cents.
Failing this, I want PFC to raise as much money as possible so that they are very obviously financially secure. This would re-rate my bonds. Obviously the higher the share price the easier it is to raise a large amount. And I’d like to extend the redemption date beyond 2026.
So my interests and your interests are reasonably aligned insomuch that I want the equity price as high as possible
Cheapboy
Obviously if it was that simple there would be no need for a restructuring. PFC made clear on the 20th that the restructuring was ongoing.
But I agree the Tennet contract was a big positive although it didn’t stop the shorters
‘Paul, you missed a renegotiation of short term lending arrangement’s from your list of options.’
No, this would be in conjunction with a equity raise. Extending the RCF will have been the first thing that PFC attempted. Clearly the RCF lenders were unreceptive, hence this current restructuring
Dan
‘ Do you believe an equity raise is going to happen Paul? (Yes/No) I know the answer could (And is) be more in depth, but as we sit right now.’
PFC clearly have to do something and options are limited to an equity raise, a significant partial sale or a takeover.
The 11.4% shorts implies a fund raise but recent share price movement suggests the latter.
Blue tiger - sorry but are you saying that the 11.4% is completely misleading and that there is no significant short position?
Bluetiger
As someone clearly well informed, how do you rate my claim this morning that, if the likelihood of an equity raise has diminished, then at least one of the 7 shorters would have been running for cover yesterday?
And do you agree that at 11.4% in total, the shorters must be expecting an equity raise in order to buy back?
If there is no equity raise (ie a partial sale/takeover) then the shorters are playing with fire?
Three options
An equity raise. Obviously this is what the shorters want/expect.
A sale of the whole company. Obviously bad news for the shorters but limited downside - they would g able to buy back at close to the bid price.
A partial sale which is large enough to allow PFC to avoid an equity raise. The obvious assets to sell appear too small to allow this but they could flog the UK business although this is not ideal re diversification. No analyst has mentioned this but could they not sell say 29% of the entire company? This would be a nightmare for the shorters since it would expose them to a full on short squeeze with no safety net.
Imo today’s shorts (for yesterday) will be especially important. There are 7 shorters, all with different perspectives re risk reward and difference sources of market research (or insider trading!).
If there is a solid grounding to the recent share price bounce, then at least one of these players must have got wind of it. And must surely have tried to exit yesterday. As some here posted, first one out the door is likely to spark a stampede. All the shorters must realise that if they are to close, if the chances of that equity raise are fading, then they need to be the first one to buy back. Closing 1% means buying 5m shares, yesterday’s volume c. 10m.
And please don’t bother wasting space with the usual Saint Paul/shorter nonsense, debate what I’ve actually posted which is not negative for equity.
‘ Oh dear short paul.....unlimited losses coming your way’
LOL! You can check out my my posting history here and elsewhere under GHH. Or X under @paulcurtis123
There is no record of me ever being short of anything.
Why do I bother posting here? I suppose it’s interesting to see how the various camps split between those who try to rationalise/understand the risks and those who are ramping or too dumb to debate.
It is stating the obvious but it’s a very tough market to raise money in. Look at all the VC funds and their crazy discounts to NAV resulting from market concerns that they can’t raise the money for follow up fund raisings for their investments.
PFC dropping sub 20p pre Xmas therefore looked very ominous but this current price spike appears much more positive as long as it’s not just BB muppets mindlessly chasing the price up. I’ve said before that lots of people are involved in this restructuring and there will be leaks. Hopefully this price spike is inside smart money buying and ideally shorters exiting.
Obviously shorters exiting would be great news and imo would increase the odds of a takeover….. if the shorters increase tonight/tomorrow then it’s muppets buying today!
‘ I think an interesting issue here is of the 8b how much is profit - is 10% reasonable? Not sure it appears like that in the accounts. Anyone got a handle on it? That's what is probably going to give us the edge for RCF extension/increase and a new bond etc. I guess the margin on the new contract is one thing, but profit on that margin is another.’
This 8bn is at risk of being severely reduced unless PFC can secure the Guarantees. This is obvious before anyone here accuses me of being unduly bearish.
This is an unusual situation as PFC will be transformed by releasing the Guarantees and extending the RCF and possibly the bonds as well. How much cash do they need to raise to achieve this virtuous circle?
Imo they will want to be able to say to BHs and especially RCF holders ‘Look guys, we have a chance to raise £Xm cash but only if you give us something in return’. So if they can negotiate better terms re extensions, security (allowing PFC to sell something and prioritise the RCFs ) and interest rates, then this will partly compensate equity for the dilution.
eg is current equity better off being diluted by say 50% but New Petrofac, now financially stable, will be rated much higher by the market.
PFC will not want a sticking plaster solution ie the bare minimum. They will want this to re boot PFC so that future clients have no worries about future cash flow problems. This will allow PFC to achieve better margins
Slift
Everything hinges on how much cash they need to raise to free up the Guarantees and renegotiate/extend the terms of the RFC.
I don’t know how much this amounts to and neither do any of you so I’m afraid you can’t blanket dismiss the risk of a D4E. All the other recent broker notes that I’ve seen have said that this risk has diminished since the last trading update.
On the flip side, Kepler are not dismissing the possibility of a takeover. This would instantly solve all PFC’s cash flow problems so you would have thought the price would be at least 50p, allowing for PFC’s ‘distressed’ negotiating position.
‘So are you going to state you are short in equities and long in bonds?’
I have no short position and have NEVER shorted anything. IMO shorting is a mugs game unless you are very good at it.
I have a friend who shorts, most of his trades have been very success but he lost over £2m on just two trades which more than wiped out all his profits.
So Cheapboy, you need to visit Specsavers!
I assume someone must have posted this last week? I’ve not seen it before, got link from Citywire this morning re David Kempton’s seven stock picks for 2024
A real ‘do-or-die’ holding, deriving most of its revenue from engineering and construction, it provides fixed-price engineering, procurement and construction project execution services and reimbursable engineering, procurement and construction management to the onshore and offshore energy industry. Having worked in the sector I understand well that the massive recent order intake is game-changing for the company, on a ridiculous forecast 2025 P/E of 2, PEG 0.1 and yielding 8%.
But beware, although up 40% in the last month, PFC has a big ‘short’ following and offshore contracting will always be a cyclical industry. I lived with that personally in Aberdeen, Saudi Arabia and Singapore for 12 years of my early career and am happy to live with it again here. This is a high-risk, high-reward stock – run any profit and exit any loss over 20%. It is not intended to be a ‘core’ holding, which I will outline in my next piece.
These are my speculative suggestions for 2024. Do run profits and monitor a 20% stop loss with the moving share price.
‘ Effectively you are saying that if the share price goes down the shorts make a profit. Then you say that even if the share price goes up they fine because they have hedged.’
For Gawd’s Sake this is how hedge funds work!!! The clue is in the name - HEDGE!!!
They could hedge by buying the Bonds. Their greatest risk is a takeover which would see the bonds go up sharply.
Barring total wipe out the bonds should be safe at the current 52 cents.
All I am doing here is quoting broker research? Have I misrepresented this research?
Why are you shooting the messenger?
Please try reading what I actually posted. I merely repeated what was in the Kepler update. Anyone disagree? What did I mislead on?
Re larger shorters, there are 7 shorters. Some have very small positions but there are a couple with 2 or 3% who would be more exposed to a squeeze. I would expect them to have some sort of risk management/hedging strategy in place. This is basic common sense.
Re Kepler’s 20p price target, they clearly expect a dilutive fund raise.
However the good news is that they believe that there is a chance of a takeover. They hedge this by saying then they would have a Buy rating!
To categorically rule out a fund raise, despite every broker and the Company flagging this as a risk, is to defy all credibility
Only broker note I’ve seen updated this year - 17th January
They say
Restructuring sorely required.
Will include equity raise and partial sales at the very minimum. Possibly a D4E as well.
They rate as Reduce with a 20p price target.
A Buy case scenario would be led by a takeover. They reckon a ME or Asian player such as a contractor.
The perfect result for all of us would be a takeover. This risk might explain why the shorters have stopped adding. The 11.5% is pretty eye watering but split over many holdings so no shorter dangerously exposed. And the larger shorters will have hedged.
YB
‘ I find it pretty ironic how the shorters seem increasingly reliant on a dilution yet the lower the share price moves the more ineffective a dilution becomes for Petrofac which in turn forces them to look at other options to solve the liquidity issue.’
The lower the share price goes the greater the risk of forcing a D4E on bondholders. Too many of you are focused on the market cap when you should be looking at the Enterprise Value. Lowering the EV makes a capital raise more attractive albeit horribly dilutive for existing equity.
But hopefully for all of us this will prove unnecessary
I’m a bit more positive today than yesterday since share price appears to be stabilising.
IMO
There has to be a cash raise barring a takeover. It’s the only way to square the liquidity circle. I am surprised the shorters have gone up to 11.2% when there must be the risk of a bid but maybe they are hedged by being long the Bonds.
I’m equally certain that the ‘smart’ money has a very good steer as to the eventual deal. There are simply too many players in the restructuring for it not to leak. The detailed terms may be closely guarded but the broad deal will have been run past a lot of funds and potential investors. There is no alternative to such a complex restructuring. People will be able to guess how well the fund raise is being received
So for me, the bottom line is when does the share price drop to a level whereby the shorters stop selling ie it’s getting too close to their best guess for the placing price.
IF they were able to extend the RCF this would free up $250m. If they could raise say $150m cash, part sell something and agree the mooted amendments with the BHs (I assume prioritising RCF but in exchange for what?), then this could be possible. Does this $450m include the benefits of freeing up the Guarantees?
Some people here idiotically think that I am talking the share price down. It should be obvious that I want the market cap as high as possible because that’s the buffer between me and bond haircuts.
So believe me when I say that the ever increasing short position at the same time as the share price is falling is therefore ominous.
I had a moderately large position during the GKP restructuring but not remotely a big player yet I was made inside. I could have given any mates the nod over what was going on (I didn’t!) so I can assure you that the shorters will know.
If they are increasing their shorts at 11% then they are very confident that there will be an equity raise AND they must be expecting a price at significantly below the current share price.