Cobus Loots, CEO of Pan African Resources, on delivering sector-leading returns for shareholders. Watch the video here.
Production is hedged for the next few years. I take a leap of faith in that Rusty understands the risks of excessive leverage for a cyclical business and am comfortable that the balance sheet is prudent. There could always be a Black Swan event but I think most of us are confident that NAT gas is going to be demand for at least the next 20 years (and longer).
Saga999. Some good points made in your post. In fact the drop in price reflects the historical ~ 10-11% risk premium over short term bonds which have risen from effectively zero to 5% over the past 12 months. Most high yield shares have faced similar headwinds for the same reason. At times like this I find it useful to value a biz based on breakup value (or standstill). By my calculation DEC is trading at ~50% discount to NAV. The two big variables are debt liabilities and revenues. Thankfully the best thing DEC did was to get ahead of the curve and convert floating rate debt to fixed and amortised🙏🙏🙏🙏. On the revenuenside much of the
Looks like some BB activity this afternoon with 85p again looking like the trigger. With potential new assets being deemed expensive by DEC this makes sense financially. All things being equal should result in increased div/share. Pay down of current debt should not be an issues given the structure of the ABLs. Expect to see more sales of non-core assets or JVs.
Ace. I have been in DEC since the IPO and watched dozens of presentations from Rusty. From Day1 he has always hated cash on the balance sheet using it to repay debt particularly in the early days when acquisitions were funded by bank loans. Now that the assets are now funded principally by the means of structured asset back notes this is less critical and de-risked the biz for general lenders. DEC still uses every spare penny to pay down expensive obligations. With the gross and free cash flow margins enjoyed by DEC and it's amortized debt, I am confident that the company is not approaching it's OD level. Plenty of valid reasons for investors not to like the DEC story but this is a weak one. As always DYOR
Could be..great acquisition for a private equity player. Cash generating business, assets trading at huge discount, demonstrated business model. Strong industry fundamentals . What's not to like?Always felt this was a risk if the public markets continued to remain sceptics. The current silence suggests something is up...
Thanks Rogue_Radar. Difficult to know where to begin with their analysis. Obviously they did not understand the value of fixed cost. asset backer borrowing, not the fact that the debt is amortised and not a bullet payment. Nor that they have acquired a big portfolio rapidly in a benign environment for investors. The old chestnut of the marked to market treatment in the accounts of derivatives not surprisingly caused confusion. It's clear that the vast majority of investors won't understand that DEC is run more like a real estate fund than a traditional O&G company, buying assets, securing fixed finance and maximising revenues from the properties, all whilst keeping costs under control. With regard to the future acquisition of new assets, the cost of finance will be reflected in the price DEC will pay for the assets. There will be plenty available to acquire, preferably from over leveraged, bank debt funded companies who find themselves in financial distress. Even if they can't find new assets, attractive returns from DEC in a "run down" of existing assets. Given the above, I don't expect DEC to trade on a 6-7% yield but happy to keep clipping and reinvesting my dividends. I certainly don't expect the broader market to offer consistent double digit returns over the next few years. As always DYOR but there is better analysis out there than this.
Jiffy . As you know the BB was never a "target". It was a notification only of the ability and the parameters of any such activity. We know at what price they are likely to implement it but that could change over the next 9 months.
I suspect that it's more likely to to be an opportunity. We know that Rusty felt that this year would be transformative. There has been no BB activity as you say for weeks and no insider activity either. Raising cash from non strategic assets and general FCF means that they are primed and ready to go for the right opportunity. Any moves back below 90p when the next dividend is paid would be am early Xmas present OMO. We will see....
The good thing is that as the loans are paid down (and as long as they can sustain production) the free cash flow should rise. Lots of hidden value here that most of Mr market has yet to realise. Must be frustrating for Rusty but he is not a seller of his shares and (like me) I assume to clip dividends for the next few years
The DEC debt is a little like a mortgage where the capital borrowed is paid down gradually over the life of the loan rather than at the end as with most normal bank loans. Much much less risk for the bank which otherwise relies on the lender having enough money to pay the capital on maturity or being able to refinance with another loan using this new money to repay it. As a consequence DEC can borrow at a lower interest rate.
Https://www.ft.com/content/0cf7beaa-2eb7-462e-af3d-56aa1be466c1 interesting times when the industry is under stress. Lots of companies scrambling for cash and asset sales...great opportunity for those with good stable cash flow and efficient production. Now who could that be?🤔
Recognition by the markets that interest rates have either peaked/will peak shortly and more likely fall when economy slows. In this environment the DEC yield becomes v attractive. Share price has been building a base for weeks and with weak longs having exited does not take much to move the share price sharply higher. Long may it continue.
With recent non-core asset disposals, free cash generated from normal ops plus renewal of borrowing facilities from it's banks, I suspect Rusty is planning on something major..... Perhaps a back door entry to a US listing? DEC is not alone amongst US gas companies trading at a discount..
Agreed. The non-core acreage sold looks to be just a tiny %age of that available to sell which is valued at basically nothing by most analysts. Probably a minimum $160MM-$300MM of hidden value. Extract these numbers from the current market cap and the value of the core business is ludicrously low. Patience required but with these divs well rewarded...
Jim800. I agree. The BB RNS is only another necessary Investor disclosure. It is very clear it's neither hype nor a commitment. I would imagine that under certain circumstances DEC will take advantage of the opportunity. It does indicate that the company feels it's shares are at or approaching a level that the company feels are significantly undervalued but it's for investors to determine whether or not they agree. DEC has a business strategy and it would appear that management is determined to execute.
I remember when AMZN went public in the 90's (when basically was selling only books). I was managing/advising money at time. Clients complained re share performance as AMZN constantly reinvesting in logistics at expense of profits for years. DEC is no AMZN but all it can do is follow it's business strategy. Most investors don't have the patience but if you believe in the strategy and management at some point you will be well rewarded. Short term share price is a function of investor sentiment only. Long term performance is a function of strategy and management. That's the difference between the Buffet approach and the rest.
Well as someone once said, God isn't making any more of the stuff and global enviro/energy policies mean that what we have left will be subject to rationing. The likely outcome therefore is higher prices for those lucky ones that have it. Patience is required as anything O&G is now viewed by the institutional investment community like tobacco stocks. They all know there is value there but few are willing to admit and commit funds due to ESG constraints. Nothing wrong with collecting and reinvesting double digit dividends while waiting for a gradual change in sentiment....