Member Info for sageoflondon

You cannot do better without exposure to increased levels of uncertainty due to exposure to the spot price - in all likelihood, you wouldn't secure the loans without the hedging as it provides certainty to the lenders - without the lenders we don't have a business, unless the shareholders wish to stump up etc.

They are always going to lose on the derivatives where the spot price is in excess of the hedged price - the value of the derivative will be marked to market - i.e. the value in the statements will be lower than that paid for the derivative - if they sell on an out of the money derivative they would make a loss on it - but they won't sell is as they will presumably deliver physical product as they are a producer - hence no cash loss. If spot is say $5, hedged price $3 the derivatives will be in negative territory - DEC then have to deliver (the actual product presumably) at $3 to satisfy the derivative contract - they don't need to buy the product at $5 as they are producing it - only cost to them is opportunity cost of not selling at $5, and cost of the derivative contract. The loss is an accounting entry, not a cash entry as such. The cash outflow comes from the premium paid for the derivative. That's presumably the Total Revenue ($1.9bn), Inclusive of Hedges up 49% to $1 billion(f), net of $896 million commodity cash hedge payments - so broadly 50% of revenue dissapears in terms of cost of the hedges. Without those hedges they would never obtain the debt though. Basically equity holders get revenue, less derivative cost, less debt servicing cost, less operating costs etc (massively simplified).

I was also fortunate with rates, but luck rather than pure design. I locked in mid-way through 2021, have another 3 and a bit years to run on that. One of the reasons we personally haven't been badly impacted by the rise in rates. Had we locked in circa 3% higher it would have hurt somewhat.

I have taken some substantial positions on rates and inflation eventually coming down, but those that pay me a decent yield whilst I wait for that to happen given I have no certainty with respect to the timing.

I think you are about right - could see one more UK rise. I think rates will be a lot slower to move down however. Surely we have to see a hit to growth in order to bring inflation down though? Given it's supply sided we need the growth hit to subdue demand surely - it's unlikely we will get the supply side sorted out in the short term, more builders, more workers etc etc.

I think the market is providing that more balanced view at present - much more of a weighing machine that you or I in isolation. The market is clearly saying the NAV here isn't reality and isn't a true and fair representation of the current value within the portfolio. I am trying to rationalise why the market is doing so with some examples of where I believe the valuations to be overly optimistic.

I'm not saying it's a bad company - I am just questioning the valuation based on it's current progress - a lot can happen in the time it takes that potential to turn into something that really supports the current valuation.

The specific numbers in this instance are virtually irrelevant - the multiples of revenue are very high indeed and therefore very subjective indeed and likely to be impacted by a wide range of macro factors and company specific factors. It doesn't take a wild jump in a stressed market to get to multiples that are significantly lower than those. That's my point. There is little point in going into the detailed historical numbers with companies like that as the valuation (on almost any accounting metric) doesn't make rational sense. That's the whole point.

Companies house will be very out of date if the company is growing rapidly. Could be 6 months out of date just based on year end.

Graphcore. Valuing any company with $5m of revenues is guesswork - no one knows which way it will go.

My thought machine revenue is estimated from grojo - so I'm out - it's even higher. Apologies.

Regardless of all of those things Sang - the valuation isn't based on the current reality in my opinion. It's a number plucked out of thin air based on what might come to pass.

There is also a lot of optimism built into Aiven's valuation - roughly 90 times revenues from what I can see, Thought Machine at approximately 30-33 times revenue. and Revolut at just over 40 times the latest (qualified audit opinion on revenue from recollection) reported revenues. Those are still lofty valuations - I am sure they are in the books at slightly lower valuations, but those are big multiples of revenue. Very big.

Is Graphcore going from strength to strength though? Reportedly had its private valuation slashed by $1 billion this year after losing a key deal with Microsoft. The Times reported in October that while Graphcore's revenue grew slightly to $5 million last year, so did the company's losses, to $185 million. The struggles prompted Graphcore to lay off roughly 170 employees this year, the newspaper added. That doesn't sound like strength to strength when you had a valuation of $2.8bn or 560 times revenue? Something I am missing?

or simply they (the big funds) don't share your view that Grow is significantly undervalued compared to the NAV. Grow is very unlikely to be overlooked. If there was perceived value there then some smart fund manager / investor would pick up on this. I don't agree that Grow is massively undervalued currently. I think we are somewhere in the right ballpark given prevailing market conditions. If those conditions change then that might move my dial.

It won't rise back to where it was until interest rates have peaked and inflation is back under control. Any indication that rates have peaked and inflation under control is however likely to lead to a re-rating upwards in my view. It should be noted that we are now below where we were at the height of pandemic fear - where it was assumed care homes were all doomed for failure and our income streams would dry up. So for me, no return to 120p, but could easily see a re-rate once rates have peaked etc. Likely fell back today on UK inflation concerns. Sure NAV will go down at higher rates, but there is already a 30% discount to NAV broadly and you invest in this for income above all else.

Yes and that isn't a good thing for inflation long term. I think the UK is going to have difficulty dampening inflation. Will likely be another rate rise this week given todays UK inflation number. Halting the rate rises will just make things worse down the line.

If a private healthcare / medical group cannot make a profit in the current environment then I fail to see how it will ever really do so. This still looks like it is struggling to make a real return on investment / capital, despite demand at an all time high, however this is carrying a fair amount of debt that it needs to service. There will be leases on some properties (not all as some freehold) that have inflation clauses in them, increasing rental payments further still, increasing staff wages etc. On top of this Spire has no real foothold in London and HCA / Cleveland dominate in the capital - likely due to the fact this is where the real returns are to be made.

If it flash crashes to £1.50 I hope I get to see it at that price - despite already holding I will be buying an awful lot more. Even more if it goes lower. L&G did see that price and a lot lower in 2008, but it's still here 15 years later, currently stronger than it has ever been. Prices like that would provide a significant opportunity - I am not sure we will be that lucky.

Yes a somewhat interesting move that was very beneficial to Swiss authorities! (who might otherwise have ended up picking the tab up!!!)