Member Info for ragnarlothbrok

Take a look around at the market and check the quality of the trading statement against some others. Its just not good enough

https://www.investegate.co.uk/discoverie-group-plc--dscv-/rns/first-half-trading-update/202110140700030716P/

https://www.investegate.co.uk/norcros-plc--nxr-/rns/trading-update/202110140700020124P/

Share price is under siege here. The sell down at 80p has really shaken the market up. Why would he sell so quickly at such a huge discount to the prevailing share price (it was around 95-96p). Initially the market reacted positively with all the staff buys but then it must have seeped in that something smelled bad about shorter term performance. The chart looks horrible now, after a period of consolidation with a recent amount of churn the price has fallen through the floor.

My take on this is that the trading update was weak and the lack of detail on profit expectations makes it seem like they have something to hide. What's with that massive increase in volumes and much lower increase in sales? If its spreads, mix etc they really should say something to manage expectations. Thew focus really seemed to be on getting the market used to the higher costs from their shiny new HQ and tech stack.

They need 58% of revenue in H2 and YoY revenue growth and H2 v H1 growth to continue at 30%+ to hit expectations. That's against much tougher comparatives in H220 which has the 'pent up demand/recovery’ story.

Using the 2019 split of 48/52 H1/H2 weighting would translate into a sales and EBITDA/profit hit of around £2m giving a P/E of 9x. A £2m miss would be closer to 12x. They have a poor record on costs and hitting targets and growth has consistently shifted further out to the right since IPO

Its a pretty one sided argument but then its meant to be. Who exactly is selling on a day like today? Behind the scenes there is a plethora of weak and uninformed holders who saw the SP going up and the gas price going up and thought oh 'this must be a good investment'. Then suddenly today they actually learn something about the company and decide to sell?

Interesting article, DEC has obviously inherited some issues with these wells and as a public company has provided a focal point

https://www.bloomberg.com/features/diversified-energy-natural-gas-wells-methane-leaks-2021/?srnd=premium-europe

I think pro forma debt must be around $1,075m now, with EBITDA $510m giving the 2.1x ratio. That means they only have around $50m left for acquisitions this year which is under the threshold for Oaktree. So they would need another sub 2x acquisition to avoid a capital raise

Rusty sounded pretty serious about more acquisitions in Oklahoma and Oaktree still have plenty of firepower available so I think we may even see another acquisition this year. Hopefully this doesn't mean another discounted placing!

The central region acquisitions have added $214m incremental EBITDA. For 2020 EBITDA was $300m, so this means EBITDA is now expected to be more than $500m for 2022.

The capital raising resulted in 20% increase in shares. So a 60% increase in EBITDA for a 20% increase in shares. More debt and transaction costs of course but then prices were very low in 2020 and 2022 should be improved and there are also synergies to consider so makes for a pretty compelling headline.

Will be interesting to see the brokers notes and revised forecasts to confirm the EPS/dividend outlook

I think the $95m is derived from their share of 2022 production at a price of around $3.70 /MMCfe, representing the average forward price for 2022 from August 2021. So the $95m is the additional EBITDA for next year.

For 2023 if you assume a 16% decline and a price of $3.40 (which I think was close to the strip at around August 2021) this gives a multiple of 3.0x which is more in line with historical norms.

Both numbers assume no synergies and that they can't weave their magic with the decline rates.

I listened to the analyst call and Rusty could hardly believe that the 2023 and 2024 prices were so healthy. January 2024 is currently sitting at $3.70, $1 more than the weighted hedged price for 2021. They are locking those prices in just as quickly as they can.

(From notes page 3)
"Reflects Diversified’s proportionate interest of the Acquisition’s next twelve months (ended 31 December 2022) Adj. EBITDA; assumes historical cost structure using NYMEX strip as of 28 September 2021 and is not reflective of synergies that
may be realised following post-acquisition integration"

So it turns out Tapstone Energy acquired the Oklahama assets from Chesapeake for $131m in 2020 less than a year ago under the bankruptcy auction. What a killing. I wonder if that's when the central region started to capture Rusty's interest....

Poor old Chesapeake sold right at the bottom

https://eu.oklahoman.com/story/business/columns/2020/11/14/tapstone-energy-wins-auction-to-obtain-this-well-known-oklahoma-companys-mid-continent-assets/312897007/

Hey JG, the presentation is pretty light on detail, but I think it says in note (b) that the $95m is DEC's proportional interest. Its a little confusing. And it also says that the $95m is based on the forward strip from a couple of weeks ago. Since then prices are up by at least 5%

"Reflects Diversified’s proportionate interest of the Acquisition’s next twelve months (ended 31 December 2022) Adj. EBITDA; assumes historical cost structure using NYMEX strip as of 28 September 2021 and is not reflective of synergies that
may be realised following post-acquisition integration"

If it is then the multiple is a steal in this market even despite the higher decline rates

In the half year report they did note the elevated financial leverage (3x) and this being the reason why they didn't consider a dividend. Might be some lingering anxiety until the board confirms the impact of the rapid deterioration in some of the end markets. For now I'm sitting on the sidelines and watching closely

Perhaps thats why the capital markets day was delayed. $200m of EBITDA acquired in central region so far. Fully unhedged which is interesting but perhaps explains why the multiple is so low and margins so high. That level of earnings is unlikely to be maintained into 2022 based on the forward strip

https://d1io3yog0oux5.cloudfront.net/_4885e2e536177fc4d4c9078148a463ba/dgoc/db/557/4512/pdf/DEC_Acquisition_Presentation.pdf

Or it could be something less company specific. My industrials watchlist which includes companies like Vesuvius, Renishaw, Synthomer, all showing declines well in excess of 10% so looks to b a lot of general worries around industrial output

Hi fatprofits

This company has been on my watchlist for a long time and the recent decline has pushed it up the list but its a pretty complicated diverse business so its taking me a while to sift through it. Aside from the general economic nervousness auto exposure seems pretty high but difficult to work out precisely, both the talc and chromium business have significant exposure ( I think talc 25%). The SP seems to have been marching upwards but perhaps now those concerns are creeping in. There has been a lot of news about how supply chain issues and raw material inputs increasing costs as well.

From June 2021 the debt covenant drops from 3.75x to 3.25x. The EBITDA consensus for 2021 is $157m (basically double H1), while debt is expected at $389m. This is about 2.5x. Its not an entirely unreasonable prospect that sales are lower due, costs and working capital higher due to the issues above. If EBITDA were to drop by $20m ($80/$57m H1/H2 split) (and net debt increase by 20) or EBITDA margin fell by 3% this would push it to 3x.

A combination of all factors, say a 1.5% drop in margins and a 7% reduction in sales would combine to get pretty close to that 3 number and the potential for a discounted capital raising taking place. Perhaps this is what is causing the slide.... Or am I way off the mark?

Forward gas prices looking strong! No wonder DEC has been creeping up, even 2023 has gone well over $3 in the last few weeks. That capital markets day would have been great to understand their hedging policy in volatile times like these... are they letting it roll for a while or locking some in?

Either way prospects for 2022 and 2023 cash flow have considerably improved over the last month. There is going to be one almighty hedging loss this year

https://www.cmegroup.com/markets/energy/natural-gas/natural-gas.quotes.html

Volatility or not volatility? Everyone seems on edge, is something going to pop? Add a moving average and you'll see it creeping up over the last few months and particularly since mid September

https://www.tradingview.com/chart/?symbol=TVC%3AVIX

As always Bloomberg sums it up pretty well

https://www.bloomberg.com/news/articles/2021-10-05/stock-traders-rethink-their-own-moves-at-fastest-rate-in-year

My gut also says that in the trading update CMCX kitchen sinked it, Cruddas is savvy and they know how the market works as well as anyone and how hard it is to come back from a second profit warning. Much better to under promise and over deliver next time. That's what I'm hoping! Some PDMR buys into the drop would have been reassuring

I remember the PLus500 issues many years ago, I bought a few after that but I cant remember when I got rid of them. Since 2013 Plus has paid out over $1bn in dividends (gross) or nearly $10/share. Would have been an amazing hold.

https://www.sharecast.com/news/small-caps-news/plus500-suspended-shares-hit-by-us-hedge-fund-cable-car-capitals-short-position--732869.html

Interesting read across from Plus500 today... PLUS, IG and CMCXC all generating ridiculous amounts of cash flow

https://otp.tools.investis.com/clients/uk/plus500/rns/regulatory-story.aspx?cid=1399&newsid=1513981

If CMCX trading update this week doesn't at least hold the revised expectations from recently then it will get very ugly. Other providers are revising up and there is the potential to be losing market share in an incredibly competitive market.

However any indication that the recent uptick in volatility is supporting performance should see some kind of recovery. I'm with the latter and have been positioning for this... the plethora of risks combined with that huge volume of money supply, much of it sitting the sidelines looking for a home as its being inflated away, should make for a very interesting Q4. Or maybe the market just continues to absorb the news as it has this year and grinds on up on low vol, but I hope not

Bet you Mark Ward has that same feeling right now

Interesting comparison to the acquisition made by our old friends at Redcentric today...

RCN acquired a IT security/managed services business for £9.5m for £8.8m in revenue and EBITDA of £0.4m
CLCO was for £0.8m, for revenue of £6m and EBITDA £0.2m.

Both expecting synergies but RCN put in the words "digital transformation" so thats surely worth a big premium right?

https://www.investegate.co.uk/redcentric-plc--rcn-/rns/acquisition-of-piksel-industry-solutions-limited/202109300700124607N/