Member Info for PUTUP

Dickeye, you're so full of it. Yes I watch the board. As do you. My personal price target has been made clear. At one point I expressed a valuation if one were to assume $85 in perpetuity. My year end price target does not make such an aggressive/foolish assumption. (Most recently I stated the reason for lowering it further: ex div and slower progress to 55k that being the production level on which the earlier target was based.) If you disagree with them feel free to bid through them. Do you have a price target of your own? Have you contributed anything of value to the board? Ever? Clear your vision fella instead of speculating as to a big conspiracy.

PS: were you one of the very clever guys that got hosed in 2016?

love you too sweetie

You conclude that because I only post in this board that I only watch one stock intensely? Ha! Perhaps this board is the only one with such good "sport" for which I have only so much bandwidth.

So you did start a thread to start a fight. How mature. Care to ever actually say anything, just once, of value?

PS: Define HNW? What's your wealth threshold for "high"? I wonder if it agrees with mine. Most likely not.

I'm touched that you miss me though

Nope. You picking a fight? Given near term risks I think the stock got overextended on cum div fever. All those who thought the div was a true yield have subsequently gotten hosed. Meanwhile, there's not been any news from the company to alter fundamentals. Short term, oil is strong but that's not a surprise. I still think the stock is cheap - obviously, given my stated YE target - but there's not much of significance going on outside of increased risk aversion playing against a slightly stronger oil price as a result of geopolitical issues. Which one will win when things heat up further? Dunno. Let's watch and see.

I'm here reading. Not much to say really. Except that the dribble that pours from some people's finger tips is hilarious. (Surreyscot is always a klassic and Opu is entertaining albeit highly repetitive. I could add in several others.) I'm feeling good about my cum div trim at circa 243p and the stock hasn't yet reached levels at which I would re-invest. So it's all a bit of a bore really.

PS: I hope Barrik's business makes it through the forthcoming turmoil in Ukraine. Putin's speech suggests moving into separatist held areas is just a starting point.

"The last $50m buyback in 2019-20 was done at £2.07p average. Where are we now?"

And your point is what exactly? Does the company still hold the shares hoping to sell them for a gain? You still don't get it. And likely never will. Oh well.

Right now Swat1 isn't looking so stupid.

"Yes. Exactly. I think we are talking about different time intervals: you, an infinitesimally small interval, and me, a typical holding period longer than a financial year. "

I'm not focused on an infinitesimally small time period. I'm using it to highlight the point. Under your argument you have to believe that the difference between the company buying at price a versus b created something that could lead to a value change - either immediately or over time.

"If the company needs to re-rate for some reason, then the re-rating that would have applied to the cancelled shares is an additional bonus to be added to the other shares left in issue; that is, the money that has gone out of the company on shares that would otherwise have re-rated, but for their cancellation, is working to deliver a bigger re-rating on the remaining shares in issue than would otherwise have occurred. "

This is important. The company is there to generate value. It invests capital for a return. If it has excess capital it's by definition unable to put that capital to work in profitable investments. It's oftentimes and in the case of GKP sitting in cash earning zippo. So if it had not done a buyback - and this applies regardless of the price at which the stock was bought at - and kept extra cash it's not going to earn anything materially more than if it pays it out. (Sure there's the minuscule interest on cash deposits but that's immaterial.) The company isn't going to earn a re-rating on excess cash.

The money going out is neither value creating (accretive) nor value damaging. It's gone. The company can't generate value from capital it doesn't have. (Again, ignoring the minuscule interest received on cash deposited.)

So any re-rating that may or may not occur post the buyback has nothing to do with the buyback. It comes from recognition of the value generated by the cash that's actually put to work. Who gets that appreciation, or in the opposite case, depreciation depends on who owns the company post the buyback. If everyone sells pro rate into a buyback (imagine a fixed price tender offer with forced participation pro rata to ownership) then the same people own the company afterwards as did before and in the same percentages. They just have some money in their pocket and less in the company. (Same as a dividend.) The company makes whatever it makes from the capital at work and it is owned accordingly. If some people sell into the buyback and some people don't then the ownership of the company obviously changes. Some have more cash in their pocket and less of the company while others have more of the company. If the value of the company appreciates via a re-rating the spoils are merely shared according to the new ownership. Vice versa if the company de-rates. But the company has merely gone ahead and earned what it was going to earn without the extra cash slopping around. (Again I'm ignoring the int income foregone on cash paid out 'cause it is t

Agreed

As I've said often, worry about the things that create (or not) value not distribute it. But the CFO has a duty to manage an efficient capital structure while reflecting business risks. GKP is far from that. It has a lot of excess capital it can pay out today and will likely have a lot more tomorrow, at least until the end of this year. They need to pay it out. And - just for Opu's benefit - I personally would prefer for now that they paid it out via buybacks. That reflects my bullish bias.

"Okay. But it’s one of several valuation methods, and it is quite handy for checking if the value thus produced agrees with a DCF valuation, a method that some say is “tell me what valuation you want, and I’ll plug in the numbers to get that” (isn’t that how most investment analysts operate?)"

Sure. But your undervalued argument hinges on a perception that buying back at one price (an 'undervalued' one) might create value whereas buying at another (an overvalued one) destroys value. So you have to be able to reconcile your EPS discussion with my point about what happens in that instant when the buyback is done. Hopefully we can agree that the company can't make money from money it no longer has. So when $x million leaves the company that's either the only thing that happens or, as you would argue, something else happens in that instant that changes the value of the company beyond the simple fact that its is now $x million poorer. What is that change? And then, once you're able to articulate what that change is, how does it manifest itself in PE terms? Oakley's argument is contingent on assuming a static PE ratio. In essence it assumes dumb investors. You don't think investors are smart enough to realise that, at a more fundamental level, the only thing that happened is $x million was paid out (just as is the case with a dividend)?

"And yes, the dividends (before tax) have helped me recover a good deal of my investment."

This also is a bit of a misnomer. You can 'recover' any portion of your investment at any point in time by selling some also. When you got the dividend, your value at risk was reduced (the shares went ex div and you had cash in your bank account). You effectively sold some stock at the ex-dividend price. (And possibly paid some money away to the tax man.)

I'm up about 315% on my GKP investment. But I don't consider my investment to be my cost base. My investment is the current market value of my holding. You can play all sorts of mind games by thinking things like "I got my initial investment back via dividends and now have a 'free run' on the balance" if you want, but the greater reality is that you are at risk on whatever the current value of your holding is on a daily basis and each and every day you have the opportunity to adjust that value at risk. Buy some, sell some, pocket the dividend, reinvest the dividend, sell into the company's buyback or do nothing.

"If they are going to do buybacks, they need to buy back undervalued shares. "

This is where you make the mistake. If YOU believe the buyback is being conducted when the company is overvalued YOU should sell into it. But likely you should be selling anyway. Those that don't believe so can simply not sell. For the company it's just $x m out the door for nothing in return (as the shares are cancelled).

How on earth do you conclude that?!! I certainly do not.

But mostly I agree with CaneToad in the sense that the CEO and COO need to be resolutely focused on things that actually create (or damage) value and not on issues that distribute it. The CFO needs to drive the focus on capital efficiency and how to correct inefficiency such as we have today.

I don't think the return of capital was absurd at all. I do believe, as I have said quite often in the past, is that they screwed up the messaging and screwed up by being sluggish to cancel (or shift the stock to an EBT). Combine that with a large retail shareholder base who continue to think a buyback is somehow trading in the company's stock with an outcome dependent on where the stock goes post buyback and you've got a recipe for a communications and trust disaster. I think it's nuts that they are distributing capital via special dividends while at the same time issuing more capital to meet stock option exercises. (There's currently another 6% equity dilution outstanding from the various options plans.)

Nobull, think about the value if the company pre and post a buyback (or special dividend). In that split instant, the only thing that has happened is that $x million left the company. Nothing more, nothing less. Nothing else has happened to make the company worth anything more or anything less. The same is true regardless of the price at which the stock was bought at. High or low the only difference is minus $x million. So the enterprise value of the company has gone down by $x million and because the level of debt capital of the company remains the same then the equity value has gone down by the same amount. Oakley, because he is looking at a given PE ratio and the impact on EPS, will say a lot has changed but that's a falsehood.

The only consideration with respect to how we ought to value such company post the capital distribution is whether we should change how we value future cash flows as a result of the fact $x million has left. And the same needs to be done whether the distribution is done as a dividend or buyback. As you note, if risks have risen materially we ought to discount such future cash flows now by a higher discount rate. But in the case of GKP, which has a lot of excess capital, that's unlikely to have been the case. The counter question is whether there are benefits for shareholders of there being $x million less in the company. If, for example, we were penalizing the company with a higher discount rate because of an inefficient capital structure we might now use a lower discount rate and hence arrive at a higher value for this future cash flows. But in the case of GKP, the size of buyback (or special dividend) we're talking about doesn't change the capital inefficiency much. They're still paying the same interest for no leverage benefit to equity returns.

The best thing about a buyback vs a special dividend is the bullish don't (potentially) incur a tax event. Opu holds his GKP in an ISA account. This is a very wise place for a UK retail investor to hold GKP, particularly this year. But of course there's only so much you can put into an ISA and if you've not built up that capacity over time you may find your ability to hold a decent stake very limited. And many other shareholders aren't UK domiciled. The large UHNW guys will likely hold their shares via tax efficient domiciles so are somewhat indifferent also. But there's likely a lot in the middle, those who own decent sized stakes and who do pay taxes on dividends for which a buyback would be much more preferable.

The company has a lot of zero cost options. There's a big difference between the level of these and the small number of shares held to meet such obligations in the EBT. The company should buy back stock now to meet such future obligations rather than doing so via the issuance on new stock. And it should buy back even more for cancellation.

While they do it, management should remain steadfastly focused on those things that actually create value.

Well you shrink the capital base when you pay a dividend as well. And if everyone sells into a buyback pro rata to their holding then there's no 'concentration of ownership'. But a buyback does allow those who want to own more to do so passively, by not selling, as opposed to having to actively buy more ex dividend.

Nobull, there are quite a few issues with Phil Oakley's arguments. Sure many managers will look at a compco, see their company trading at a discount and think an 'investment' in their stock is value accretive. Yes, the cheaper they buy stock, the more shares they buy for the same money and the greater the impact on EPS. (Conversely if they 'pay too much'.) But first it assumes a PE valuation methodology is appropriate and that investors don't ascribe different PE ratios to different companies for valid reasons such as levels of excess capital. When it comes to valuing GKP, I think a simple PE metric is far too simplistic.

Also, a $50m or $100m buyback isn't going to affect the bankruptcy risk of the company one dot. We still have excess cash well in excess of our debt and we're going to generate a lot more of it in the current year. Buybacks (or special dividends or other forms of capital distributions) can't destroy value unless they raise risks materially. GKP isn't in such a position. I also think it's too superficial to argue they create value, even when a company is undervalued such as GKP today. Most importantly, buybacks just distribute value. They do so in just the same way as a dividend. The only difference is who gets (or who decides to get) that distribution. GKP seriously screwed up the messaging on prior buybacks and shareholders have a right to complain about that. Worse, they were slow to cancel the shares and a distrusting shareholder base fed upon that. The one good thing that a buyback can help achieve more proactively is to - potentially - alter the composition of the shareholder base, providing liquidity to the disgruntled who seek/need it most and allowing those who are bullish to continue to sponsor it. Of course, the same process can occur via special dividends as those who are bullish reinvest their dividends while those who are not bank them. But it requires much more action on the part of the bullish than with a buyback and is generally a much slower process.

GKP has tons of excess capital. Worse it is paying $10m a year for the privilege. They have a lot of excess capital to distribute this year. As they distribute it, the remaining company's value will of course fall as a result while, hopefully, what's left in the company will continue to create value.

I'm not assuming anything. Someone or some people decided to buy and someone or some people decided to sell. You have no idea whether it was just two parties transacting, one seller and a book of many buyers, or the other way around. For all you know if could be JF selling a block because he will soon get a bunch more under the VCP. You have absolutely no clue. Unless you do, the trade has zero information value. And yet Opu's bias is to see it as a Big Boy buying. LOL. Maybe something will be revealed in March when we get an updated shareholder analysis as of the end of February. Or maybe the relatively small trade won't even register.

For every buyer there's a seller. Focusing on the buyer alone is rather stupid.

I wonder which big boy sold