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Maybe it's a reaction to the news item about protestors in rural areas blocking Open Reach from installing telegraph poles for their cables. That would be rural areas where it is too expensive to install underground cables. Took half a day to make an installation that would normally take 20 min (according to the news item). These protesters would be the same type of people who complain about the poor broadband service that rural areas get compared with urban areas. These rural installations will probably never justify the cost. So if were down to me I would try to explain that to the protesters, but if they prefer WFH without decent broadband tell them to go fish.
Congratulations to CB and JM on a cracking set of results. But why didn't the SP go straight to £12 or £13? Undervalued?
In order to keep my reputation for being negative, the reality is that the $543 m of 2023 booked unrealised gains on YPF will not be replicated in 2024. So the P/E ratio of 5.25 is not an indicator of future performance (as they say).
As to cash flow "meaningfully exceeding expenses and finance costs" that glosses over the fact that there is no FCF.
Despite all this I finally took note of TWT's advice on 13 March and bought a chunk of shares!
If there is a case at all surely it should be against Ofcom if the complainants think that they did not do their job properly ?
As things stand it looks like BT are the victims of "double jeopardy", having previously been punished for supposedly overcharging. I can see that the penalty was by agreement rather than a court decision, but it still goes against natural justice to be punished twice for the same offence.
Indications are that the auditors are querying the value of the YPF claim in BUR's balance sheet. In that case SP sub £10 is likely. The SEC approved valuation method is being shown up as lipstick on a pig. Capital provision assets would be a difficult sell in a liquidation, not that I am suggesting that as a possibility at this point. Just saying they don't have much readily realisable value. If the auditors are unhappy about YPF, it is a short step for them to question whether BUR is a going concern.
My guess is that a rescue rights issue is needed to stabilise BUR's finances for the foreseeable future. Maybe at £7 a share?
The two words shareholders dread to hear. BUR must know 2023 results, so why the delay? Could it be that the auditors are kicking up about the carrying value of YPF? That "asset" likely represents about half BUR's net assets at the year end, and contributes a large proportion of 2023 "profits". Milei may have good intentions, but, as we all know, his ability to bring them to reality is severely challenged. Inevitably, paying off foreign creditors will be a low priority amidst all the other pressures. The auditors will be well aware of this.
The fact that BUR raised a further $275m in January suggests that the last quarter did not produce enough realisations to make BUR cash flow positive. Again the auditors will be concerned that every year for a number of years BUR has had to have recourse to the debt market to raise capital to fund the business. Auditors will not want to be caught having given an audit clearance when lenders decide enough is enough.
I had fibre broadband installed by BT a few months ago. Costs £46 a month, which I thought a bit expensive. But the engineer installed it on one visit, first re-routing the cable to a more accessible position then strung it from a pole in the road and fed it all the way into the house right next to my home office. 150 mbs, far more than I had with the copper wire. I think its called FTTP! Plugged it in and it works a treat. Very reliable. All for the cost of equipment £9.99! Absolute bargain. Well done BT. As a shareholder I would have to say that £100 would still be far too cheap for the installation work involved. I am telling you this just to balance out some of the negative stories. If I have a criticism it is that there needs to be more customer awareness of the fact that BT has/is constructing a national fibre network, and that many homes and businesses can already access this service.
I admit to being a wobbly investor right now. I am willing to believe that Milei is genuine in his intention to pay down Argentina's debts (IMF and lawsuits), but the odds are heavily stacked against him achieving progress towards this goal any time soon. According to Reuters, Argentina is due to play $2.8bn in liabilities to the IMF by the end of February. If there is agreement at the current meeting, that will release $3.3bn new funds from the IMF. But that would seem like paddling very hard to get nowhere. I can't see that draining YPF of funds is the right way to go either. YPF probably needs all the funds it has to be a credible partner in developing the Vaca Meurta. Raiding that would defeat the one thing that might help Milei make good on his dream of giving Argentina's economy a prosperous future as an accepted member of the international community of nations. Anyway, surely the IMF would not lend Argentina more funds if a large chunk of it ends up with BUR. It seems to me that the most likely outcome on the 10 January is that no acceptable plan will be produced by Argentina, and consequently BUR will have to go go down the enforcement route. I think we all understand that this will be a long grinding process with rewards hardly making a dent in the damages award.
Leaving aside the Kicillicrap and irredeemable bond smokescreen. Playing with some numbers, what needs to happen is for the Argie state to pay out say $1bn per annum for 10 years. That income stream would need to be secured in some way, maybe on drilling rights or natural resources revenues. There would also have to be some onerous default provisions, to make sure it continues beyond Milei's first (and perhaps only) term. That would make it possible for BUR to sell on the income stream to financial institutions, at a substantial discount. So $10bn might be sold immediately for say $6bn, and that would produce a net to BUR sum of $2.5bn. That still would be about $1bn ahead of the current carrying value in BUR's accounts, and make the other stakeholders very happy as well. All that lovely cash. Alright its not as much as the fancier numbers in this chat, but lets be realistic.
Thanks MrM, nice to get some real insight into the situation. There must have been some reason for "allocating" 25% of YPF shares to the oil producing provinces. I am guessing that it was in return for those provinces agreeing to give YPF drilling or fracking rights in their territories. If so BUR won't be able to unravel that arrangement without prejudicing the value of YPF itself. So now we are down to just the 26% controlled by the Federal government. But this being Argieland, we can expect that this remaining 26% has also been compromised in some way, to be revealed only when BUR try to enforce against it.
On the thread "2023" I would caution that the Q3 (9 months) figures for "Total revenues" were inflated by $460m write up of YPF carrying value. That's 80% of the total. Whilst "Operating income" was also inflated by the same figure, that is, 95% of that total. Obviously this write up will be included in the full year figures, so they will appear to be good. To labour the point, this is a non cash, one-off adjustment. To call it "revenues" or "income" seems a tad misleading. But it demonstrates once again BUR's huge dependency on YPF. Thats why these case developments, and how the market views them, is so critical.
To end on a more positive note, Preska is absolutely right to reject the Argies motion further extensions of time.
Methinks Melei will be a one term president. So even if there is a never never agreement between his govt and BUR that's got about 4 or 5 years before it gets scrapped by the next government. Not long enough for BUR to get a reasonable portion of the award. Then suppose that Melei really does want to improve Argentina's status in global financial markets, that will take years and painful decisions to achieve. Have voters got the stomach for it? Very likely not. When you have a serial defaulter like Arg, the incoming government will find that every piggy bank has been smashed open, every asset that can be, pledged, sometimes more than once. That includes YPF. If the information is correct that they hold 26% in YPF D shares (what's that about anyway?) what happened to the other 25%?. Even so I think BUR is going to have to go down the enforcement route and pick whatever flesh it finds off the bones. A long and unrewarding task. As you can tell I am getting a bit pessimistic about all of this.
TWT, you have an impressive record of timing your purchases and sales. Respect for that. The main thing that makes me hesitate before following your latest purchase is concern about what will come out of the 10 January deadline. Milei must have massive problems on his plate trying to deal with the basket case economy he has taken on. Can he really be seen to be handing over $$$ (or more likely some long term promise to do so) to what is no doubt perceived in Argentina as a foreign vulture investor, at the same time as he is asking the Argie population to endure huge price rises, wiping out savings, job losses, and government spending cuts? Surely he will be very limited in what he can offer BUR. Perhaps this is why US shorts are increasing their positions. With this in mind, how do you see BUR SP playing out in the period immediately before and after 10 January?
None of the conventional measures of value are much use when applied to BUR. P/E ratio is the usual method, but Morningstar has it at 5, whilst HL says 95. We know the reasons for this divergence (YPF), but P/E ratio is not helpful because YPF unrealised gains are likely to be of a one-off nature. Net assets are reported on the "fair value" basis agreed with the SEC, but that comes out at $9.5 per share (Q3 2023), or £7.5. Somehow this does not really capture the true value of BUR. Looks like its a judgement call trying to predict the future of "known unknowns" as well as "unknown unknowns".
You have got to wonder whether anyone would buy a used car off the Argies, let alone an oil company. Do we seriously expect Repsol to step up for another rip off? They do say once bitten , twice bitten, so you never know.. Any buyer would want the contract hedged around with conditions. Such as no petroleum export restrictions, no local price controls, no reneging on drilling concessions etc etc. And would the Argies honour the contract? Have they learned their lesson or is this another case in the making for BUR?
I just do not believe that the Argies will allow their holding in YPF to be transferred to be held by the Court as security for the damages award. It would go against everything they have done throughout this case, and would probably be regarded as a national humiliation. YPF is seen as something that could provide the means to revive Argentina’s economy and that will not be given up easily.
Significantly, it will be the existing regime that will make the decision, and I suspect that they will take the path of intransigent obstruction that they have always followed. The president elect may not even be consulted, and he does not have the numbers in parliament to do anything about it. The fact that he said recently that the “Malvinas” belonged to Argentina is not an encouraging indication of his priorities given the basket case state of the economy.
So I think that their choice will be to give up on the idea of a stay of execution, and take their chances with BUR’s enforcement campaign. Argentina has a long history of battling creditors, and I expect that all the low hanging fruit has long since been picked. Even BUR enforcement division might struggle in such a scorched earth landscape. In the words of BUR’s own lawyers:
“The history of Argentina’s efforts to resist payment of lawful judgements demonstrates that the odds of Plaintiffs quickly attaching assets are negligible. Rather, what lies ahead is a long road of asset discovery and proceedings to recognise and enforce the judgement in other jurisdictions……..”
What I am saying is that BUR’s payday will be more like a trickle than a flood.
Alright TWT, 'fess-up time. Are you going to sell out in advance of Q3 results/or have you already sold? I was hoping that BUR would have made it to £11 by now, but the fact that it hasn't suggests to me that there has not been all that much pre results buying, that might unwind afterwards. As you say USA shorts seem to be holding, so also no buying pressures there either, yet. A puzzle is why they have brought the results forward by nearly 5 weeks. I was expecting maybe 2 weeks, but not this much. Normally that would be good news, but with BUR you never know.
The man (TWT) says buy, make no mistake you had better buy. As far as we can tell the UK shorters have bailed out, but there is still over 1% or 2m shares shorted in the USA. How are they feeling right now? Needing to go to the rest room quite quickly I suspect.
Alright the Argies definitely have a problem trying to source funding for a bond. I have no idea what legalities are involved, but why not put up their holding in YPF as security? Market cap of YPF has recently been around $15 bn, and 51% (former Repsol holding) of that is nearly the $8bn damages award before interest. That's a neat fit and sublimely ironic as well. Actually the Argies could be holding nearer 60% (non public float). No idea what happened to Petersen and Eton Park shares - possibly sold off long ago and now part of the public float. Anyway Hon Preska give it a thought? Given the potential of the Vaca Meurta it sure would be some incentive for the Argies to come to the negotiating table. And what about BUR as an oil company. At least it would be more profitable than litigation finance seems to be!
I did the same as TWT and reduced my over exposure to BUR just before the H1 results. My concern is the same as I’ve said many times before. Cash flow. BUR keep on saying that liquidity is “robust” or “solid”. But its not really. You will notice that the cash balance at the end of June was only slightly more than the $400m borrowing they raised in Q2.
Realistically, what with the second round of Argie elections on 19 November, we should not expect any monetisation of YPF this year. Also I believe BUR cannot risk having a cash balance of less than $200m at the year end. It needs to be $400m otherwise that would confirm there is a problem. But that could easily be the situation unless there is a bumper load of cash realisations in Q3 and 4. I am looking for some improvement but will it be enough? So what should BUR do?
Shareholders won’t like it but a discounted 1 for 2 rights issue at $10 a share (about £8.25) could in theory produce around $1bn. That could be done on the back of superficially good Q3 results. I say superficially because they could do a conjuring trick of writing up YPF carrying value following the $16bn damages award. $200m “profit”…anybody? Anyway could they push the rights issue through before the year end? Pass on that. If feasible that could get BUR through until they get something out of YPF.
Alternatively, super salesman CB could try for another $400 borrowing, again before the year end. The interest rate would be well into junk bond territory, at over 10%. Ouch, but it would put off the problem for a while. Never mind the debt/equity ratio closing on 100%.
Finally BUR could of course cut back on new business, to the point of stabilising the cash flow situation. The salesman in BB would find that a bitter pill to swallow. He would also have to do what he does best, a bit of explaining to shareholders……..