The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
The more shares in treasury, the more value is concentrated in what shares are left in issue. They have been buying back shares at heavily discounted price levels, which is only a very good thing for all of us shareholders. Their EPS is enhanced purely by these share buybacks. Considering more than 10% of the shares have been purchased in the past year, the market cap of PLUS is actually still below the high at end 2022 and early 2023. To be precise, the market cap today is £1683m, vs £1730m in Jan 2023 and 1800m in Nov 2022. The share price looks like it is run up a lot, but the market value of PLUS is actually still lower than it was at the end of 2022, which is very odd considering they have created a sizeable and fast growing US business since then, not to mention opened UAE, Japan, etc.
Arbitraging this is difficult unless you have a custodian relationship in both jurisdictions that can handle the share register switch, which is entirely possible but requires the custodian to action. Basically only institutional investors can do this. Once you have the Nigerian stock, you need to sell it and FX the proceeds back to GBP, which shouldn't be an issue now that currency controls have supposedly been lifted. Liquidity in the local share, the small volumes, and sheer admin hassle means few institutional shareholders are likely to bother. Hedge fund types might do it but they have to open local custody in Nigeria first and I'm not sure that is a priority for them or anyone! I do wonder if the investment banks might do it as a prop trade, but it is not really their business. More than anything, it is just a great signal that SEPL is mispriced here in the UK.
I don't think anything can be done without a shareholder vote. I'm going to hunt out the detail from Israeli corporate law, give me a few days...
Mele Kyari, CEO of NNPC, is the blockage to this Seplat-MPNU acquisition. With the weight of political statements expectant of immediate sign-off, it is about time he folds or is fired. These people are the worst face of corruption, pursuing self-enrichment at the expense of the Nigerian people, it really is despicable. About time he is fired.
Management have pointed this out a few times in calls
Hopefully you all will understand by now, the shares held in Treasury will always remain there, and can never be re-issued, which is a feature of Israeli law. They are unable to be cancelled or deleted. They are unable to be re-issued to anyone, neither to management nor to shareholders in an offer. They will just sit there permanently. In effect, they don't exist any more as shares. This is a feature of Israeli law and nobody can do anything about it, I'm told.
I'm guessing we'll breach 2100 then consolidate for a while. I guess the market will be watching progression of CFTC data to observe how the US business is developing. VIX is up 40% since end March, so that is broadly supportive too.
MPNU production is around 70k bopd I hear, the difference being the natural decline rate of wells when there is no new/replacement production capex. That is what Lokpobiri is referring to.
The terms of the deal remain the same as originally agreed, as far as I know/have read
Lokpobiri's statements certainly suggest a higher likelihood of imminent closure, as he already has egg on face from his comments at Davos in January, so I don't see why he would make such a statement again and one so clear if he felt the delays could continue much longer - it would just make him look even more impotent
What institutions overlook to date but will appreciate in time is the diversity of the business today, by geography, regulatory oversight, and product. PLUS does not need to hammer one particular market, such as UK CFDs, with marketing dollars to squeeze growth out at any cost whilst eroding margins. PLUS can be seen as a technology and regulatory platform which is truly global, thus targeting niche markets and segments all over the place at the same time, eeking out incremental clients and profits without depressing profitability. The next legs are US commodity futures, UAE, Japan, but there will be more after that, such as European derivatives.
This is why this is a sustainable growth business and is worth an ex Cash PE of >10x, in my view.
On valuation, personally I look at ex cash PE.
The market cap is USD2,000m
Unrestricted cash (non-regulatory) is around USD500m
Net income will be around USD300m
Ex cash PE = 5x
What is it worth? My view is that this business can maintain the profitability of its legacy markets while growing some new markets, so it is worth a minimum of 12x PE today.
That would indicate a fair value of 12 x 300 + 500 = USD4,100m or £42/share
I don't think there are any complaints here. The business is growing, just ramping up in USA, UAE, and elsewhere, is throwing off cash, and enhancing EPS through buybacks alone (at a very low valuation). This share is going to £30 in my view. The issue has always been converting Institutions to the story, so the journey to £30 will be incremental wins.
Just through £20 it appears
Does nobody find this share interesting?
Quite a bit of that cash is regulatory capital, but you are broadly correct that this is a very cash generative business hence all the buy backs and dividends yet cash still keeps piling up.
This volatility is great for PLUS
Nigeria needs to accept that fuel prices fluctuate; is it such a hard lesson to learn? The beneficiaries of subsidised fuel are black market traders who suck up all the supply and export it.
You have a world of pleasure awaiting you next week in which case
The trading update is going to be a good one, so in my view it is likely to break £20 by this time next week
Brokers have been talking about business in UAE being really strong with high net worth traders
16 April
Should be good update with Vix rising, UAE CFD business roaring, and growth of US operation