The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
Ujo has 40% stake while Eog has 30% stake in wressle - if that 40% is transformational for ujo surely eog must be the same? Any reason why the wide difference in market caps of 15mn for eog (pre placing proceeds) and 29mn for ujo?
Cheers
People need to understand that just because a company is flushed with cash doesn't mean market is going to assign a premium to the cash value. Cash shells are always trading at a 10%-15% discount to the cash held. Let's say you have a £100 note , no one is going to be interested in paying £110 to get the £100 note in return. To attract buyers, that £100 needs to be selling at £90 or so. Hence the discount to cash. So any suggestions about takeover of the company for cash, are just silly. Why would anyone want to pay £1bn + for a company just to get the same amount in cash alongside a fixed gas priced asset in a questionable jurisdiction? There is nothing convincing in the assets for anyone to make a bid.
And the company is cash rich, asset poor and that cash is losing value fast with 7% plus inflation. And will be hard to buy any decent prized assets in this market. Cash is of no use if it's not deployed to generate further returns. And given the entry in Egypt, we can be rest assured the company post tender will be trading at a discounted valuation in line with its MENA peers like PHAR,GENL, GKP,etc given the main asset in Egypt, at least until a better acquisition comes by.
Sadly, there is no compelling story at cne anymore. With Egypt entry, company has become a risky jurisdiction stock and will need to be adjusted accordingly in terms of valuation. And cash flow from Egypt are always in arrears so there's that. Post tender offer Company will just have Egyptian assets, and small exploration acreages with no exciting drilling anytime soon. And if we remember market had dropped 20% to £1.55 in weeks following the news of Egyptian acquisition - so market had already shown what it thinks of the assets. And this asset is the only thing cne will be left with post tender offer - and some additional deffered payments which has been already earmarked for Egypt capex of $100mn + from 2022 to 2025+.
So no cash flow growth visibility and certainty, and no value creation opportunity with drill bit, and no decent oil and gas price exposure as the only assets they bought at the bottom of the oil market has been locked in at the lowest gas prices you can imagine today. And exited the north sea which was even worse.
NoQuestionMarks - you mentioned "It seem silly to talk of downside protection at the moment but in 2020 just look what happened... Egypt gives us that downside protection."
Sadly, disagree. When oil prices crashed - Egypt stopped paying revenues and cash flows to the IOCs in 2020 and it all came in arrears of quarters. So what is the point of having protection via these low cost assets - if that protection gets rug pulled during the crisis? If you are not going to be paid during the oil price crash - what use is it having these assets in the said jurisdiction?
All IMO
It's not about energy transition - it's about transforming Shell into a energy business of the future as the Shell CEO puts it confidently. Market doesn't have confidence in a CEO who couldn't predict cyclicality of his own industry and couldn't see 2 years down the line, and now he is set out to build a business of the future for 5-10 years down the line in a sector he has no experience in. Like I said - a CEO who doesn't have foresight, should be gotten rid of in hindsight, especially one who couldn't keep the boat steady through a crisis like covid.
And many corporates tried transitioning / pivoting their mega businesses and failed miserably - GM, Oracle, IBM,etc. What guarantee there is that Shell wouldn't be a cautionary tale? This pivoting is already causing Europeans to pay through the nose for gas and electricity.
XOM and CVX are valued 70-80% higher for much lower FCF generation - while Shell is the opportunity because it's undervalued a lot compared to the other two because it's got no clarity of business direction - market is afraid that by going woke, might also mean going broke to an extent .
The moment Third point news broke out about asking Shell to break up - share price shot up 5%. Any whiff of break up and Shell's share price will go on a massive run past £25 per share, everyone knows that. But Board and management guys want BAU and keep chugging on with their job factory even though market doesn't fairly value the business.
Even with such high oil prices Shell is struggling to break through £20 per share - that means the CEO has no confidence of the market of bringing out true value. And then there is people looking at Shell pumps thinking the price of fuel is going up because of Shells greed. Did these people yell when companies with their covid tests and vaccines were making huge profits the last couple of years?
Shell is hated no matter what and it's location is in Europe - where capitalism and ambition are frowned upon. Shell might as well stop pleasing everyone and disappear in a big bang of value creation break up for its shareholders.
Why does this CEO goes on interviews with such guys. Does he not have a company to run? Why does he think that it's part of his job as Shell CEO to placate the world and go on apologizing to the world about making money in a cyclical industry? When oil prices were negative these activists were laughing at the potential death of the oil industry . And now they are crying about profits that oil companies are making?
You don't see Chevron or Exxon CEOs giving any interviews or airtime to these idiots and justifying profits. They only justify it to the shareholders whether it's loss or profits they are making. Why does Shell believe it's Shell's responsibility to convince people to let it profit?
This Shell CEO sometimes seem to be building his own brand for life after he's kicked out of being Shell CEO. Like what John Kerry seems to be going around building his own brand. Shell cut the dividend without any issues but now if it has to increase it back to pre covid levels it's afraid of what the society will think about its profits to shareholders?
This is what Dan Loeb said that Shell is too obsessed with its past legacy. That legacy came to an end with the dividend cut imo. This company should be broken into oil/ gas and renewables energy - totally agree with Third point, Shell is immensely undervalued compared to Chevron and ExxonMobil.
Someone should ask the CEO and board why do they want to use money and profits from the oil and gas segment to fund renewables? Oil and gas cash flows are cyclical and are earned by taking on debt for projects at fairly high interest rates. Shell must be paying interest on its debt as an oil and gas company at 2-3% while capital is available freely or at very low rates to the green and renewables agenda companies. How is it fair to use a high cost of capital via oil and gas to fund renewables which can access capital easily on it's own? Separate the two companies and let shareholders choose which one they want to hold and which one they don't.
Boyo- it's not about future strategy but the confidence in the current management to deliver on any future strategy.
When Shell's management came out in 2020 declaring oil price is not going to rise for 3 years above $60 to justify their dividend cut - it showed that this management cannot predict or doesn't have the foresight about their own industry in which they have specialised for decades?
I mean how can you expect this management to deliver a new energy strategy that is for the future, in a completely different direction to oil and gas - when they couldn't even predict cyclicality of their own o&g industry of which they are supposed to be experts? I'm surprised the major institutions didn't ask for a break up of the company when it's clear that Shell is more of a job factory for these overpaid hindsight executives.
When the company is first to cut and run, and last to raise the dividend, it's time then that someone like Third point should get more support to call for a break up to realize true value that market refuses to see in shells share price. Surprised how this CEO with his terrible performance has still held on to the job - something that can only happen in Europe. It makes me think all these big pension fund institutional shareholders don't care about their clients funds generating an efficient return.
Hopefully Third point gathers more votes from institutional shareholders to get a proper break up of Shell to cut these inefficient top level management hierarchical. With a breakup Shell is easily worth £35 per share, hands down.
The CEO and board of Shell panicked and cut the dividend in first half of 2020. If they had borrowed through the tough time or strengthened their balance sheet when times were relatively good pre covid, share price would be above £25
Shell seems to be comparing itself to the dog house candidate bp. As of this moment Shell share price is down 2% and Chevrons is up 4%. Shell is valued under $200bn and Chevron is above $340 bn. Thats a good 70% higher than Shell.
Let's hope the chairman Andrew MacKenzie will book a return ticket for the CEO BvB along with Jessica CFO. Chairman should become the CEO and he can achieve what he achieved with bhp. I bet the CFO quit because she would have been said no for her promotion to CEO role. It's good that they passed on her for CEO role and now need to get this current CEO out on his retirement so he can sit and pontificate.
Absolutely rubbish that the CEO kept his job after cutting the dividend. Rubbish legacy he leaves behind. His macroeconomic foresight is very poor, given his panic dividend cut decision.
Boyo - Chevron has updated their shareholder return policy a week ago or so. A big jump in dividends/buybacks outlook. Exxon similarly way ahead. While Shell and it's management and board are busy trying to win political points and apologizing for making profits. Shell needs a top level management clearing, need fresh blood, they think too much of themselves - Third point called them out perfectly.
Shell's management and board is too scared to make big profits but happy to cut the dividend in half, at the first sign of trouble during covid in 2020. And bringing dividends back to pre covid levels they are being too cautious.
Shell's CEO BvB and board need to learn that they get paid for foresight, not hindsight.
Shell in summer 2020 declared that oil prices are going to be stuck under $60 until 2023. And their actions of offloading assets in a depressed market and cutting dividends has shown that these guys are not fit for the business. Exxon and Chevron took on debt to save the dividend while Shells Board was busy panicking and cutting dividends in 2020. I'm surprised how this CEO and management survived after the prized dividend cut?
And what about European homes still being heated by Russian gas that's being bought daily? Enough with this selective enragement. Will be interesting to see who the enragement is directed to when people's electricity and gas tarriffs go up 100% or 200% in the coming months because of lack of diversification to local gas supplies.
Boyo- cheers, would be interesting to see the performance of all these majors in the last 3 to 6 months and ytd alongside other eu ones like Eni and equinor.
Shell is making money hand over fist in this market. But it's too apologetic of making big money - what a shame. The likes of mining companies don't get this kind of hassle. Bhp moved back to Australia. Shell should break up and dump the brand into oblivion and rebrand itself. Need new CEO who's not stuck in eu mentality of pleasing the population instead of looking at the profitability and returns for shareholders. Shareholders have still not seen sp recover to pre covid levels with oil above $100.
Any idea what's the IR contact and CEO email? IR team on website looks like a department of 1000 people. Complete job factory shell seems. This is why USA has better capital deployment and returns because shareholders hold the management accountable unlike here what we see even with profits flowing in. What a shame to be in European listed big caps if you can't act capitalist unapologetically
Chevron which is a much smaller rival than Shell, is valued at more than $300bn.
ExxonMobil is valued at over $340bn. While Shell sits at $208bn.
Any reasons why this valuation gap when Shell generates a lot more free cash flow than both the other two? Does merit the break up argument to realize true value? If Shell is to be valued at least equivalent to Chevron means Shell's current share price should be 50% higher, above £30 per share. BvB should follow the CFO back, and Shell should get an American CEO who believes in shareholder value creation than thinking they are running a NGO imo.
#BOO being looked at by at a potential buyer... according to Betaville report
https://twitter.com/baroninvestment/status/1493973029566754818?s=21
Imo another way to look at is - if you assume 90%+ market value attributed to GGPs share price as a proxy for 30% Hav stake that GGP has, then at £526mn market cap the 5% stake would be valued at around £70mn? That's the closest public market value attributed to Hav can be seen? Not seen any good estimate here that's based on similar incremental acquisition of the license by some other JV?
From a while back;
Looks like CNE had started kicking the gov officials out of the seized Paris apartments? Say what you will of the arbitration process but the main attorney guy, Dennis Hranitzky and his firm has brought a lot of sovereign countries in line with the international law.
"Cairn have started the enforcement of the Paris decision. That should stop. Then there is an appeal process of the main arbitration case, that is still going on. There are domestic litigations as well. All of these need to be withdrawn from their side. So, it will be a clean slate from both sides."
https://www.news18.com/amp/news/business/interview-confident-that-companies-affected-by-retro-tax-law-would-be-more-than-willing-to-talk-to-us-revenue-secretary-4056125.html
And seprerately, in media interviews these officials did confirm speedy resolutions as well, so hard not to take their timelines literally ;
""We hope that the resolution will be done very fast. Also, once a firm is ready to comply with the provisions of the undertakings and the rules, we would like to refund the principal amount soon after," Bajaj said."
""The companies are very conscious about their top line as well as the bottom line. If one gets into an agreement with us now, one stands to gain immediately while resorting to the legal options may take longer as the law will take its own course. The current arbitration itself has taken so many years. A cash flow today is better than uncertainty in the future. A prudent company will look at all the pros and cons before taking a call on the issue," Bajaj said.
https://www.businesstoday.in/amp/latest/corporate/story/exclusive-expect-fast-resolution-of-retro-tax-cases-says-revenue-secretary-303556-2021-08-07
Megla- can you point out the formal RNS or page number in the circular where CNE has given a formal guidance of "few weeks" for receipt of payment? CEO mentioned his few weeks expectation of receipt at the concall but everywhere else in formal communications CNEs mentioned it as "expected near-term resolution ".
I agree regarding the few weeks comment goof up. Maybe not best to take timelines by these gov officials literally. But they have not mentioned specifically when the receipt is expected in the RNS just "near term"
But majority of us on this BB have bought in after the arbitration award result and possibly after the law amendment. So having bought in much cheaper than most who paid over 200p earlier this year and that too after its been de risked a lot.
And re CNEs long term view - CNE has cash to do sizable acquisitions - can't find any other London listed E&P who has the flexibility and balance sheet of doing an acquisition of upto $1bn and still have a strong balance sheet and market cap equivalent to cash. Current cash flows from just Egypt assets is what has got the market unexcited and hence market is pricing CNE with that boredom of cash flows of course unless CNE can get much higher FCFs.
What CNEs management team does with the north sea assets sale cash is what will define whether CNEs worth holding long term aside from the cash return side of the story. And long term for people can be over a week, month or a year. CNE has got some serious exploration prospects in Suriname and Mauritania. Lots of things to look forward to but sadly all can't be executed within a few weeks imo?
Comments like this is the reason why even genuine retail holders are treated with disdain by most Co. Managements/IR.
You know that it's a FTSE250 company with a big institutional holder base and not some run of the mill AIM junk? These institutional holders especially Blackrock and Franklin Templeton have waited over 7 years to get to this point of resolution through the entire gruesome arbitration process... Hence not a surprise that CNEs BOD didn't take a shareholder vote to decide on the resolution of the Indian tax issue as every Johnny-come-lately will have a self centered opinion which might not be for the best of the company. Not surprised CNE focuses more on its main Institutional shareholder base who've had their money stuck in for 7 years through this process.
Agree regarding having patience. Legal matters usually are a bit slower, keeping aside the lousy "matter of few weeks" CEO comment. Especially if CNEs case withdrawals might be taking the most time, who knows?
But they will not be mentioning any market sensitive information or details of the process, just because someone has called or emailed the IR/Company, although they could just mention that the process is ongoing in reply to the retail emails. But to be fair, they did update in the circular this month regarding the current status of the expected resolution, which is same as the HY results day.
It has moved pretty consistently with the other FTSE250 similar sized oilers the past few days. Although with similar drops as leveraged HBR/TLW, and today there was the big Royal Dutch Shell drop to suck all oilers down imo.
34a - that's not correct. The fully hedged bit is reasonably accurate imo. If you see the March presentation of this year before the refund law amendment happened over the summer, CNE had a plan to monetize the award value;
"Monetisation
- Potential to transfer the award to third party funds
- Asset could be pledged against recourse or non-recourse financing"
So basically CNE could access the value of the award partially while enforcement and seizing of the government assets takes place on the side. For example, CNE could access, let's say $300mn by pledging part of the award. So in this scenario CNE gets $300mn upfront for acquisition of production assets, etc. while the seizing and crystallization of government assets continues on the sidelines. And remember the award value is compounding so end of next year the value of the award would be $1.9bn minus the pledged part of the award. So essentially instead of getting $1bn upfront it could be staggered $200-300mn realized per year post tax for next 3-5 years? And over the 3-5 years that award is already growing due to interest so tax payment on the asset seizures could be offset with CNE easily extracting over $1.5bn over 3-5 years cumulatively imo.
The difference between not accepting the refund and going for enforcement would be a short term hit to sp offset by a long term contingent asset sitting on the balance sheet at over $1.5-1.7bn. Nevertheless best to get the $1bn refund and move on.
And the drop in the sp over the summer mainly was due to aegon II selling out in low liquidity and of course oil price drop imo, which was evident in all E&Ps sp and not just CNEs sp over the summer.
All IMO dyor