The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
I doubt notrex is a shorter, just a long term holder who is burnt and negative about the experience. If you bought at 100p (£20) or above on the basis of income, then you have seen both income and asset value reduce dramatically. Bound to leave you pi55ed off.
Its interesting that it seems a lot of the asset value erosion, and consequently the demand to slash dividend, was driven by bot based shorters like Voleon. Forward selling 5% of the equity in a crashing gas market created its own momentum and narrative. Well played to the shorters, they made money.
The real question for Johnny come latelys is what next? The gas market looks set to recover, the shorts will have to fold at some point against the gas market reversal. So forgetting the slightly limp buy backs, 5% of the free float will have to be bought back by the shorters. In theory that should reverse the drop from 75-90 (£15-18) that the shorts precipitated.
Gas price is depressed right now, spot price coming out of the El Nino winter of 23/24 is in the gutter.
However:
November 2024 Contract $2.993 and rising
https://www.wsj.com/market-data/quotes/futures/NGX24
November 2025 Contract $3.884
https://www.wsj.com/market-data/quotes/futures/NGX25?mod=quote_search
November 2026 $4.181
https://www.wsj.com/market-data/quotes/futures/NGX26
All three futures are trending up sharply, so a six, eighteen, and thirty month gas market view looks a lot healthier for producers, and DEC forward hedges should be easy to achieve at a decent profit margin.
Also...
Net cash provided by operating activities
2023 : $ 410,132 2022 : $ 387,764 2021 : $ 320,182
But...
Free cash flow
2023 : $ 219,096 2022 : $ 217,727 2021 : $ 227,334
So cash generation from operations consistently up, but FCF not keeping pace due to increased interest payments, holding just about level.
Across the last 3 years the results for 2023 were obviously the strongest, with most indicators strongly up despite exceptional markets in 2022 and 2021.
I'm not a ramper, but I am also not irrationally negative either. In fairness to skier...
Adjusted EBITDA
2023 : $ 542,794 2022 : $ 502,954 2021 : $ 343,145
Revenue:
(Total revenue, inclusive of settled hedges)
2023 : $ 1,046,327 2022 : $ 1,023,547 2021 : $ 686,905
Gross margin
2023 : 52% 2022 : 49% 2021 : 50%
Voleon are the biggest shorters of DEC , its interesting what their website says about how they work:
'At Voleon, we approach investment management through the prism of machine learning, applying flexible statistical models to the problem of financial prediction. Rather than relying on human intuition to discern how the market works, machine learning employs statistical algorithms capable of detecting persistent effects across large swaths of data'
So basically they are technical analysis driven shorts. They don't have to know anything about the company other than its trending pattern was down, so bot sold it to push it further down. There is no actual business insight applied, and likely none whatsoever about the company activity.
https://voleon.com/
On the plus side it seems unlikely many posters here work for them... ;D
The buy back will get reapproved at the upcoming AGM on the 10th May. See the agenda item below. Clearly their statement and intent is for the buy back to proceed through the rest of the year and into next, claiming that it will stop when the approval expires is just silly.
Next xd 24th May for a payment on 28th June, we should see after that whether additional capital has been allocated to the buyback program.
The 5% pricing clause is interesting and explains the stop start a couple of weeks ago. Basically if there is a sharp rise they won't be able to buy shares for the next few days, but you would think that once the price stabilised they should play catch up, which they don't appear to be doing.
AGM Item 17 states:
'THAT the Company be generally and unconditionally authorised pursuant to section 701 of
the Act to make market purchases (within the meaning of section 693(4) of the Act) of any its
Shares on such terms and in such manner as the Directors shall from time to time determine,
provided that such power be limited:
to a maximum number of Shares with an aggregate nominal value of up to £951,368
(amounting to 4,756,842 Shares as at the date of the Notice) representing 10% of the
current issued share capital of the Company, such amount to be reduced by the nominal
amount of any Shares purchased pursuant to the authority in Resolution 18;
by the condition that the Company does not pay less (exclusive of expenses) for each
Share than the nominal value of such Share and the maximum price which may be paid
for a Share (exclusive of expenses) is the higher of:
- 5% over the average market value of the Shares for the five Business Days
immediately preceding the date on which the Company agrees to buy the Shares
concerned, based on the share price published in the Daily Official List of the
London Stock Exchange plc; and
- an amount equal to the higher of the price of the last independent trade and the
highest current independent purchase bid at the time on the trading venue where
the purchase is carried out,
such authority shall expire at the conclusion of the next annual general meeting of the
Company or 30 June 2025 (if earlier), unless previously revoked, varied or renewed,
provided that if the Company has agreed before such expiry to purchase Shares where
these purchases will or may be executed (either wholly or in part) after the authority
terminates, the Company may complete such a purchase as if the authority conferred
hereby had not expired.'
3750 a day is just about a million shares in a year (3750x5x52 = 975,000). Given the current share price that would be just over £10m buy back, so I round numbers I guess we could assume £10m handed over to the broker. Of course that assumes the buy backs will continue for 52 weeks.
It will be interesting to see if the run rate increases after the next quarterly dividend based on the company handing over more cash to PH.
Only in Wales, gold mining with tractors. :)
Because as soon as the placing was announced the 'real' bid and offer dropped to the placing price without any volume of sells. We have been sat at the placing price (0.065p) plus a fraction of a penny to buy (0.00655-0.0668) since then. Despite a much larger than normal volume of trades since then the real bid and offer hasn't moved at all, the market makers have been obscuring this with self trades at 0.08 and 0.075 in the last few weeks.
There is no other explanation other than the offer shares are a stock overhang, unless you can see another reason for the above trading pattern.
Should have added, to get through a 585m overhang you need market volume of 1,170m, assuming all shares are MM traded. The market makers were not likely the ones that underpinned the raise directly.
That also assumes that 100% of raise shares will be sold, some may have gone to stickier hands although it seems likely not.
Robbie, I understand where you're comi g from, but the sells whilst lower in quantity have been higher in volume. I've been watching the trades too, I agree there are an awful lot of buys at 0.066 /0.067, all the 0.08 ones are Market maker self trades to obscure the real data.
I don't see any ii buying, that's the most unfortunate thing. We have not reached the stage where anyone but private punters will buy these on the open market. A nice fat TR1 would make me much happier than the next gold assay results.
Should have added
From the last RNS:
'The Board ... intends to use the Net Cash Proceeds to pay the ... acquisition payment of $4.0 million... ,provide working capital for the North America business and settle outstanding tax provisions while returning cash to shareholders.
.... XLMedia's Board will continue to execute this strategy whilst also evaluating ways to maximise shareholder value.'
So the first para suggests somewhere i.r.o. $20-25m should be returned to shareholders, whilst the last sentence hints that they may be sitting on inbound interest for the US business also.
Seems all the short term spike drama is over, except obviously it isn't. There will be follow on news sooner or later, it is just a waiting game now.
Any bets on when the next major announcement will be? And what?
1. Sale of North American business
2. Cash distribution plans
3. Acquisition made in N America using funds raised
4. Results
5. Office Xmas party date...
The problem with matching numbers up like that is that if you have a seller with 585m then you also need 585m buys. The trades have been obscure because of the tight real spread, but either way we are nowhere near through an overhang of 585m sells. Given some 'real' / other sells in the mix we are maybe 1/3 of the way through , so more or less another month unless someone starts buying heavily.
That's assuming of course all 585m are the overhang, I agree the trading pattern suggests that is (very sadly) the case.
shorts sitting at 5% ish of issued share capital, most likely all short sold well below the current price.
at some point the shorts will either have to capitulate or double down, they can't stay where they are given the price momentum.
the shorts probably attacked dec on several perceived weaknesses
1. unsustainable dividend
2. el niño driven collapse in lng prices
3. biden administration block on export projects
4. congressional enquiry
5. sector wide bloodbath
6. opaque business model
7. downward momentum
in turn...
1. change in strategy eliminates this perception entirely, and the company now has capital for growth.
2. el nino is done for this year and in retreat. next winter will be different
3. 18% forecast increase in exports next year as new export projects come online
4. latest esg report knocks any potential critique into a ****ed hat.
5. sector already showing signs of recovery as futures start to climb again
6. still less clear than it could be, but not as bad as it was perception wise as us investors 'get' the model better than uk ones.
7. now upwards rather than down.
if the shorts fold, and for the reasons above i think it's when not if, they have to buy 5% of the company on the open market. i can't see then doubling down in face of the above, it would carry way too much risk. of course the shorts could be hedges for long positions, in which case they will still get closed sooner rather than later.
we can see from the recent price movement that there may not be that much free floating stock about, and the company has peel hunt also trying to grab what it can. it's likely that if one of the shorters folds the others may quickly follow.
as a result it's easy to see the capitulation of the shorts creating a large gap up back to the 1500 - 1700 range, with a slower recovery beyond.
not the worst time to be invested here.
Trek,
The best source of LNG short term price prediction for the US is the EIA. If you're investing here and haven't read its short term report yet then you should.
https://www.eia.gov/outlooks/steo/report/natgas.php
Their prediction for the average price in 2025 is $2.90 due to the things they can see already, namely a slight fall in production and an 18% rise in exports.
What they do not include in their model is any macro climate effects, so IF (still an if even if it is probable rather than possible) we do go into a prolonged La Nina then the extra demand will put additional pressure on a system where prices have already risen back to more normal levels.
Where you see that climate guess starting to be reflected is in NYMEX 2026 prices, now rapidly trending up and we'll ahead of the EIA forecast.
NYMEX for Nov 2026 is currently $4.10 and rising fast.
https://www.wsj.com/market-data/quotes/futures/NGX26
All good fun, but it does look like we have seen the bottom of the LNG price cycle.
DEC has switched from attracting buyers on a high dividend to trying to deliver a high ROCE.
The basic premise is that instead of paying out the majority of profits in dividends, the company can achieve a higher return for investors by using some of that profit for capital investment instead.
Its obviously a painful switch if you bought in exclusively for dividends as income will have been the sole criteria. Now the company premise is capital growth plus (lower) income.
Remember the company is still generating the same total income that is now only partly going directly to shareholders. The remainder is going to attempt to grow the company capital and / or pay down debt. That bottom line on the accounts, Shareholder Equity, should increase, and also increase per share as the number of shares in issue is reduced. Its not like profit has been switched off, its just been switched in format of delivery.
Given the share price movement before and since the change it would seem at least in the short term to be the right decision for everyone, no matter how painful.
Back last year I posted about El Nino historically collapsing prices for natural gas. The 2023-24 El Nino is one of the strongest on record, we are seeing the reports of the warmest March on record as a direct result. Northern Europe was colder than the recent average but Biden shutting down gas exports scuppered any plans US gas producers may have had to build on that market opportunity.
The El Nino has as expected created a situation where gas production in parts of the US is uneconomic, some producers effectively giving their gas away as a by product. That means over the next few months we can expect to see some gas producers who aren't hedged going to the wall, and their assets becoming either orphaned or available for purchase.
However, historically a very strong El Nino has often been followed by two years of La Nina, the opposite effect where temperatures for the next two years are significantly cooler than average. NOAA has just declared that this winter's El Nino is (as of the end of March) now in full retreat.
This year's El Nino is most like the ones that happened in 97-98 and 72-73 where the very sharp spike in temperature was followed by nearly three years of La Nina.
Gas market analysts employ climatologists that are very thoroughly aware of this data, and it is pretty safe to assume that they will be calculating gas futures on the basis of winter 24-25 and 25-26 having higher than normal demand due to the probable occurrence of a prolonged La Nina.
Meanwhile back at the ranch, DEC are almost through El Nino unscathed due to hedging, and are now in possession of the means to buy up some of the assets of those less forward looking companies just in time for gas prices to start to recover going into next winter.
Yes I know its all crystal ball stuff. But climate has a fairly significant effect on gas demand and prices, and a lot of it whilst not exactly predictable can be reasonably guessed at planet level. Of course climate change could muck it all up and do something random we haven't seen before.
Today and yesterday the MM has stopped doing those daft 0.08 self trades pretending to be buys. I wonder why the change in behaviour? I mean its lovely that they want to keep the mid price up a bit, but its fairly clear the buy price is 0.0665-0.067 and the sell 0.065-0.0655 .
We are still seeing a lot more buys than sells, but at least one of the placing destinations has obviously created a stock overhang by making their shares available from the day of the announcement, even before they were actually admitted, at any price higher than a profit of 0.01 per share.
It may be worth a question to GF, why are you placing shares with such loose hands if the news is so positive?
Its always possible that the special dividend could be at or around the current share price given the cash raised. That could be quite entertaining.