Proposed Directors of Tirupati Graphite explain why they have requisitioned an GM. Watch the video here.
Below link is where it seems the rules would be published. They had the draft ones published few weeks back and discussions with the companies had already started.
https://incometaxindia.gov.in/Pages/press-releases.aspx
Megla - i think the 25% buying back was from a share price of 195p -200p on the day of the HY results. At current or lower share price, buyback percentage should be higher than 25%. Nevertheless lower the share price higher the buyback amount so it's a win win in a sense if you are planning to hold for longer than a few months, as the percentage return at CNE post divi would be closer to 100% just on current NAV numbers?
From the transcript ;
"Analyst- I mean, if you look at the current share price, post dividend, $200 million you're buying back over 20% of the stock, or nearer 25%. That's an awful lot. What's really the driver behind that?
CFO- And that buyback programme, I mean, obviously it's pretty significant as a percentage of the market cap, and in terms of the daily liquidity. So, it will take some time to deliver that, obviously slightly dependent on where the share price is, but it'll be a rolling programme. We'll need shareholder consent for a buyback programme of that scale, given the percentage of market cap."
https://www.cairnenergy.com/media/2966/hy21_cne_transcript_210907-final.pdf
I think they will be conservative in not taking on too much debt. Say what you will of EGY acquisition one good thing about it is that all the growth, exploration etc. will be self funded I.e. Through the asset cash flows. Cne wouldn't have to draw on any debt for capex of these assets. North Sea assets or Senegal capex would have meant drawing of debt especially when they are not necessarily low cost hence exposing the balance sheet during oil price downturns.
I think next acquisition would be similar I.e. In terms of low capex and opex costs. Given that cne are focusing on the word growth in the next phase of the company post India, and they have clarified they are going after scale of production would mean in total having assets that could cash flow at least $400-500mn a year(extrapolation of c.$150mn OCF)? A net debt of $300-500mn could generate sizable returns to the equity holders. Or even much less debt or near net cash position should be high return to equity depending on FCF generation and use of capital. The options with $600mn of cash would be very attractive for equity holders?
Genl has $300 gross debt(marginal net debt)
Tlw and enq have much bigger debt loads
Thunder - yes, it's low capex but that $140mn ocf was based off of when the production was already above 45kboepd net. Production has been down below 40k since 2020. One good thing with the ramp up is that cne is planning to focus more oil and liquids production so that might help boost cash flow as more oil price linked vs gas, but with PSCs it's a headache to go about valuing correctly. It's definitely a good deal in terms of price paid for the acquisition which is fairly low in comparison to other assets. But cash generation does look like it's going to be paltry compared to the north sea oil assets.
I'm hoping that cne leverages with $500-600mn + debt alongside existing cash to execute a $1bn + acquisition of a portfolio or a take over or merger of another E&P in a stable jurisdiction like UK or USA or similar less volatile jurisdiction. Hopefully this time CNEs board will go after majority oil assets which will give cne exposure to markets oil price alongside gas. Worst to be stuck in silly fixed prices for commodities when inflation is rampant. You take the commodity risk but then also get the reward.
Oil assets should be a key target for acquisition because oil price has a floor set by OPEC. No other commodity has a price floor set which benefits the oil producers a lot in normal circumstances. But a good mix of oil and gas is always prudent.
All IMO dyor
It's about overriding commercial decisions of the E&Ps. Exports give market prices to the E&Ps. What do you think the prices would be for the E&Ps selling domestically instead of exporting? Fixed gas prices that cne has so happily accepted should give an indication?
If you can't sell your own product via exports your risk is tied to a single customer and that customer also sets the price. No point of having low cost assets if the product price you receive is also low and not market based? It's very silly to class EGY acquisition as low cost when the gas sales price is fixed at a very low price. What would happen if oil prices rise a lot and they ban export of oil as done with LNG ? What exposure would cne have for its oil exports which are more or less linked to market prices currently?
Does Cne board has a lot of experience in this region given they jumped head first into the jurisdiction? Cne should focus on regions they have experience in before buying into producing assets imo. Market and analysts alike can't see the value proposition. Makes you wonder if cne management is just thinking about setting their jobs/profiles years to come? Cash flow seems terrible compared to what Kraken and catcher are produce in a normal oil price environment? Unless CNE can come out with other big acquisition and commits to regular and growing dividend, along side exploration win monetization hard to see how EGY acquisition alone is going to get the market excited?
This is the risk operating in such regions. Cne management should think twice about considering another acquisition in the MENA region imo. It's a shame how the cne board thought it's good value and stable fiscal regime. There was value because not many other buyers wanted to enter such jurisdictions possibly? Exiting India only to enter Egy has been a terrible assessment of above ground risks when coming to E&Ps and psc regimes.
"Egypt has halted gas supplies to Shell’s ELNG export plant with immediate effect. Eni, operator of Egypt’s second plant at Damietta, has been told supplies stop at the end of this year. The move suggests that either Cairo anticipates an output slump or it has other plans for the gas.
Egypt’s gas surplus appears to have been short-lived. Just three years after restarting LNG exports following a four-year period when it was reliant on imports of the super-cooled fuel, Cairo has again slammed on the brakes.
State firm Egas has told Anglo-Dutch major Shell and Malaysia’s Petronas, operators of the 7.2mn t/y ELNG export terminal at Idku that no more gas is available to export. Italy’s Eni, operator of the 5mn t/y Segas facility at Damietta – which only restarted in February after a nine year outage (MEES, 26 February) – has been told it will only receive gas supplies until the end of the year.
https://www.mees.com/2021/9/17/oil-gas/egypt-calls-time-on-lng-exports-end-of-the-countrys-gas-surplus/a5fd8d70-17b5-11ec-af84-fd006eb0a8cd
It's hard to say if we've found strong support unless we consolidate at these levels for a few days and then move up as we look forward to the receipt of fund news. And there is no dependency of other companies accepting the gov offer vs what cne does. CNEs settlement case is completely independent of other 16 companies.
Some thoughts on the value per share numbers -
Anyone buying CNE today at 175p is actually buying at 103p because they will be getting back 72p dividend. And then there is 28p worth of buyback to follow after the dividend. So including that, buying today essentially means their actual buy price is 175p-100p = 75p. As 100p worth of value will be returned post receipt of the funds.
So 75p buy price is not bad considering the leftover post divi and buyback cash of, conservatively, $350mn + $250mn(post capex, EGY, NS proceeds) + $75mn(north sea contingent payment) roughly amounts to 96p per share and if you take Egypt asset value at 60p per share and ignore all exploration you have residual value of 96p+ 60p = 156p
So basically buying today at 75p for just cash and raw asset value of 156p. Not attributing any value to forward EGY plans, oil discoveries, revenues, etc.
I'm hoping that 28p buyback actually buys back a lot of shares turning the 28p per share buyback into 40-50p worth of buyback as the share count reduces. So essentially the per share numbers shown above post buyback would have to move even higher?
Curious to hear thoughts on the above numbers if they are too optimistic or wrong etc. with some reasoning? Of course all of the above is excluding the value the upcoming asset acquisition would add hopefully.
Any other ftse or mid market cap E&Ps provides similar or better value on a risk adjusted basis? Would love to hear any other stocks people have their eyes on that can beat the above value proposition?
All IMO dyor
About the discount the share trades at against the asset value. Would have thought they could influence it some how apart from the buyback route? Maybe get new institutional shareholders via roadshows etc? Haven't seen any big director purchases either in ages...
The analyst summarizes well in the call; from the transcript -
Analyst - "I mean, shares have been trading at a pretty sticky discount, so I guess as a consideration trying to close that discount"
CFO; "Well, it's partly about trying to close that discount, but it's also, as you say, if it's trading at a discount to asset value, then clearly buying back shares and canceling them is accretive to asset value per share"
https://www.cairnenergy.com/media/2966/hy21_cne_transcript_210907-final.pdf
That can be a reason for pull back. CGT might be easier to swallow than the divi rate but still quite a flawed pricing seem to be realized. Essentially anyone selling today is selling cne at a marginal rate. If refund value is 150p per share then at today's 175p price, the market is valuing CNEs worth excluding India at 25p (175p-150p). Of course theres $300mn + cash, $75mn and other asset value not being priced.
But still think there's a negative view towards cne because of its EGY entry. Only CNEs Board /management seem to be excited by the acquisition and surprisingly almost all shareholders voted for it as well. Market hates to see any value or excitement from it. Dumpster diving for value is never a good value proposition.
Given the $360mn coming in from gov refund, cne should cancel the north sea sale imo.
The price action has at least reset the chart rsi? Over bought to over sold territory within a few days and a drop of over 20p. Seems strange price action given the news - seems a bit more than the sell on the news brigade. The price action looks a lot similar to the drop from £1.70 to £1.30 few months ago. Seems more like an II is exiting especially one who was just in for the India resolution?
One positive is the amount of shares cne would be able to buy back if share price stays here or below. £140mn should easily be able to buy back 20% of the shares in issue. Shame the share price is down heavily, when the whole market, E&Ps and oil are all rallying...
Good to shake weak hands off especially ones sitting on profit after recent rise and consolidation to take place.
But also wouldn't be surprised if another II might be exiting. We still don't know what CNEs management has in mind post return I.e what is CNEs story. There has been an acquisition in a jurisdiction which never gets the market excited. Would the next one also be just as unexciting? Usually acquisitions are very exciting for the shareholders but CNE has set the bar low with the first acquisition. Imo cne should acquire the next asset which would provide scale for cne to instate yearly regular dividends or regular buybacks, especially with the discount the market places on cnes share price.
LuckCounts- you should probably go back and read the RNS', and try thinking if announcement of a disposal is when the discussion of disposal began or concluded. Senegal and UK oil asset disposals have happened in a once in a generation oil market/cycle bottom I.e. 2020. 2021 is when the disposal news was RNSd, but the work for those disposals would have kicked off in 2020, when ideally cne should have been looking to buy oil assets counter cyclically.
And where are you seeing that Barclays has hiked CNE price target to 315p today? Are you sure you are not looking at the Jan'21 Barclays note on cne(below link)? In that price target, Barclays has included full value of the award which was $1.7bn as opposed to $1.06bn that cne has accepted.
https://www.lse.co.uk/news/CNE/barclays-hikes-target-price-for-cairn-energy-after-indian-arbitration-award-ue6cgwdl11sfczr.html
Best to avoid mindless ramping especially when one is not good at it.
All IMO dyor
The interesting part is that if post divi of 70p if there is a consolidation as seen in Jan of let's say 11 for 13 then cne would be left with 420 million shares outstanding. And if buyback of $200mn starts after the consolidation then the buyback will scoop up a lot more shares given already significantly reduced shares outstanding.
Currently cne doesn't have a story after its silly bottom of the oil market sale of uk north sea oil production assets. Would have rather preferred cne to squeeze out all barrels at minimum capex after so much investment in the north sea assets.
CNE currently has no oil or gas price leverage, just some assets in a jurisdiction which market refuses to value and it can be seen across all Egyptian oil and gas players like Sdx, UOG, PHAR. Is there any core player out there that's valued highly? Talk about selling good assets to buy a bunch of assets which will always be discounted by the market. Could cne do any worse than this acquisition with the other $700mn post divi and buyback? You never know, after the disposal and acquisition they announced in March, can't really say about the managements judgment in terms of doing smart counter-cyclical acquisitions?
All IMO dyor
Not sure what changed in the past few days from the 235p target?;
"Berenberg upgrades Cairn Energy to 'buy'
Fri, 6th Aug 2021 10:19
(Sharecast News) - Analysts at Berenberg upgraded exploration and development firm Cairn Energy from 'hold' to 'buy' on Friday, stating "significant progress" was yet to be reflected in its current share price.
Berenberg highlighted that India's finance minister, Nirmala Sitharaman, introduced a taxation laws amendment bill on Thursday, which will effectively withdraw retrospective tax demands made by the Indian government to Cairn in 2014.
The German bank stated the proposal would refund any amounts taken in payment by the government and return Cairn to the position it was in prior to the claim.
"In effect, this would mean a refund of circa $1.0bn-1.1bn. This is clearly a huge step forward for Cairn and significantly increases our confidence in a material, near-term payment from the Indian government," said Berenberg, which also increased its price target on the stock from 170.0p to 235.0p.
"The shares closed up by 26% on Thursday but, in our view, this undervalues the importance of this development and we think there is potential for an additional circa 50% upside in the near term. In addition, we reiterate the likelihood of material near-term cash returns to shareholders as and when any refund is received."
Can't find the full rationale of their price target change? Can someone post it?
Agree, the next acquisition has to be big and exciting enough for the market to look forward to and which is value accretive. Hopefully, next acquisition won't be like the Egypt acquisition which market decided on the day of the news release that it's value destructive even though it looks accretive. Hope these BOD members take note and stay away from high risk jurisdictions and don't go dumpster diving.
All IMO dyor
Imo if you only see the cash value in cne then it's as silly as buying a stock right before ex divi just to get the divi. Might as well sell and move to other stock if you have above 50% upside in that stock with very low risk. Cne imo is an optionality play. The acquisitions that can be accessed with the $500mn is something the market is not pricing and might not price as it's an event driven upside which is there to be unlocked. Egypt acquisition has dampened expectations of what this management could do with cash but hopefully with bigger firepower cne might get a better asset in a much better jurisdiction.
From what Berenberg has said, this refund means they see a target price of 235p in addition to the divi and buyback returns.
And so if you take broker estimate of Egypt asset value of 66p per share and residual post divi cash of $700mn as 100p per share that gives you 166p per share after the $700mn return. And if you also include the $700mn (72p divi worth $500mn + 28p buyback worth $200mn) that gives you a conservative 266p target (166p core NAV + 100p divi buyback return) pre ex divi. Market is obviously valuing Egypt assets but not fully on the future 50kboepd production.
"In effect, this would mean a refund of circa $1.0bn-1.1bn. This is clearly a huge step forward for Cairn and significantly increases our confidence in a material, near-term payment from the Indian government," said Berenberg, which also increased its price target on the stock from 170.0p to 235.0p.
"The shares closed up by 26% on Thursday but, in our view, this undervalues the importance of this development and we think there is potential for an additional circa 50% upside in the near term. In addition, we reiterate the likelihood of material near-term cash returns to shareholders as and when any refund is received."
Agree, Egypt is much better than krg but the experience of such jurisdictions is not great with the investor community hence bargepole mentality.
The only saving grace I can think of Egypt assets is that Cne will be focusing on increasing production from 35kboepd to 50kboepd and their main target to increase would be oil production rather than gas production as mentioned in the webcast. At least oil is priced to Brent mostly as it's exported and not some silly fixed gas prices. They could review the gas prices and renegotiate them once full production back online.
At least the increase in oil production will bring in a lot more cash flow. 2022 could have a decent mid 40kboepd net production to cne with good chunk of it oil, hopefully a lot more oil production than today's levels.
Unless CNEs exploration finds a barmer field, Rajasthan equivalent discovery in the Egyptian desert don't think market is going to be excited at all with this asset.
L3 - agree. Market hates the Egypt acquisition but the shareholders still voted fully for it. Let's hope cne doesn't take the vote as a sign of dumpster diving looking for rubbish jurisdiction assets just because there is "value" there. The value is there because no one is keen on the assets in such jurisdictions. Look at genl, gkp, great cash flowing assets but market hates pricing them fairly or even in a decent manner. In comparison look at Serica almost same market cap as genl, gkp and half of CNEs market cap for barely any attractive cash flowing low cost assets? Sometimes, it's not all about value hunting - there are so many investors who think of genl and gkp as bargepole jurisdiction stocks. And cne entered nearby region thinking of it as a stable jurisdiction. Worst off all, also exited a stable jurisdiction like north sea.
The current board has been in place for so long - should have seen some new management post the award settlement? Cne needs a new story. Hopefully next acquisition is big enough in an attractive jurisdiction that gets the markets juices flowing - the market prices a stock higher when it's excited about future. Egypt acquisition has nothing to get excited about sadly and that's what market has shown with its discounting applied to cne sp.
All IMO dyor