Member Info for Soder

There is a full risk off in markets given they are turning from worry about to elation to worry how that is going to now impact growth. Recession will happen. It’s a given. And that will impact demand for everything including oil and will rock markets despite savannahs solid fundamentals.

If it’s too hot. Get out the kitchen. You can always buy premium bonds.

Just some back of the envelope from data in the Dec 21 presentation and 2021 Fy trading update.

Trading update:
Cash 154 and gross debt of 524 gives net debt 370
Sales cited as 230m and opex was “at or below the lower end of guidance of 55-65m”.
As such lets take 55m opex and that gives EBITDA (230-55) EBITDA of 170m!!!! Is this right?? Not sure what the mkt has missed heer as its way above consensus.
Using a share price of 35p, GBP/USD FX rate of 1.25 and 1306.1m shares outstanding a mkt cap in $ 571m. As such enterprise value (mkt cap plus net debt) in $$ is 941m. That’s an EV/EBITDA of 5.5x.

Pro forma for acquisition closing will have 1407.2 shares outstanding.

The presentation says gross debt will be 885m which we can reconcile with gross debt at year end of 524m + 300 sr debt to finance acquisition + 32m junior debt = 856m. So in the right ball park.

Pro forma number of shares out will be 1407.2m.
For FY 22 at 75$ oil combined sales forecast at 596m and costs of 226m. That gives PF EBITDA of 370m.
In terms of cash flow the pres says that forecast 22 cashflow is 266m and that every $1 increase in oil px above 75 gives and extra 2.5m of cashflow. Average YTD oil price is $101 so that would give an extra 65m =331m. They are stating the transaction close date as 1 July so some of the cashflow is included in the transaction adjustment but lets take half of it (165m) for H2 and add to the YE 21 cash position of 154. Gives YE 2022 cash of maybe 320m.

Hence net debt = 885-320 = 565m.

Thus at the share prices below using 1.25 FX rate/EBITDA370m/net debt 565m/1407.2 shares I get the following EV/EBITDFA multiples for FY 22 pro forma

30p=2.9x
40p=3.4x
50p=3.9x
60p=4.4x
70p= 4.9x
80p=5.3x
90p=5.8x

Conclusion: straight oil and gas multiples are really depressed at moment still but the infrastructure (midstream) element of this and the contractual nature of the Nigeria gas revenues means this should trade on a premium to a straight E&P. Why? Cashflow. Pure and simple. Thi is the ultimate cash machine and with no Uk production the UK gov cant touch us with any windfall tax nonsense. Would think we could easily trade north of 5x by year end which puts us in the 70-80p in my view. SO…..todays price of 35p? Keep buying!!!!

This is a naturally cyclical industry. The companies repaid balance sheets in years like 2022 so they don’t go bust in the ears like 2016-2107-2019-2020.

Mark my words, at some point the erase will fall out the energy mkt again but most likely will be a super cycle given Russian supply will be ignored by most buyers.

A windfall tax on these companies this year (as per boss of centric a) is like burning the furniture to heat the house. It’s futile. And ultimately it will case more issues down the line.

I do not believe we will have a windfall tax as when the next cycle comes you would get a hold load of smaller e&p going under and blaming the government.

I saw it. They reiterate 600p price target.

Flex…when getting a feel for gas it’s really iselsss to look at spot as pretty much nothing trades there. Unlike a liquid (oil) it can’t easily be stored and transported so it’s sold on contract for certain delivery. As such you need to look at the ICE curve.

Russia just cut 3% of German imports. U.K. Nat gas spiking up 41%

Russia just cut some flow to Germany. Totals about 3%

U.K. gas now up 41%

It’s the 12th of May and so far this month the total losses on crypto ave been $800bn. It turns out the supposedly risk free stable, $ pegged stable coins are not actually….er….stable or pegged. Losses on tether alone have been $15bn this WEEK!!!!

Retail investors own this crap in SIZE and also on MARGIN.

Guess what is currently happening. The cold hard realisation that you just put your life savings and net worth in a ponzi scheme.

Margin call. Raise cash. How? Dump equities.

Investec. Buy 635p target. “We view the recent share price weakness as an opportunity given fy22 free cashflow of 1.5-1.7bn at current oil and gas prices”

Barclays. Buy 670p target. “The stock remains our TOP PICK AMONG EUROPEAN E&Ps”

Stifel: reiterate buy. 750p target. “Net debt down underpins potential for much higher return of cash to shareholders in the future”

Obviously debt reduction is from cashflow and cashflow looks heavy in q1 given capex is back loaded. They still targeting 1.3bn for the year and only spent 160m in q1. But still…..amazing cashflows.

Great update. Next stop 600.

You are over thinking it. Get long. Go Kip. Wake up in 12 months when the whole world are still weening themselves of their remaining Russian gas and go buy a yacht.

Charts charts chats. Put this on your chart….dependence on Russian gas…..a small selection.

Bosnia 100%
Serbia 89%
Finland 94%
Austria 64%
Greece 51%
Germany 49%
Italy 46%
France 24%

Conclusion: gas prices are staying high for a long time. For a very long time.

Ignore the spot…most gas (globally) is sold for future delivery as it’s me ch more of a local market given need for pipelines. I think it’s something like less than 5% is traded at the front month/spot price.

Also it’s now summer. So front month levels always expected to collapse.

But look down the curve….

FNU2 September delivery 214p a therm
FNV2 October delivery 215p a therm
FNX2 November delivery 240p a therm
FNZ2 December delivery 235p a therm

The buyers of gas (as point out by Scottish power ceo yesterday) are all still actively buying gas for winter delivery at levels way way way above the optical screen spot level.

If just a fraction of the deals and performance for 2022 comes off this stock will be meaningfully higher by year end. MEANINGFULLY.

Give a man a fish and you feed him for a day. Give a man a fishing rod and teach him how to fish and you feed him for life.

Apply a windfall tax to an oil company and you can give the consumer some short term relief from an energy crisis. Leave the oil company to invest your ts cashflows in future energy solutions and provide a business environment for this investment and you solve an energy crisis for a lifetime.

To transport gas you either need a pipeline or a gas to liquids facility. Neither are cheap and neither are constructed quickly. Nigeria do have a LNG export facility and do export to Europe via this run by NLNG ltd. Not sure what capacity it is running so I guess it’s possible we could connect to this facility but this would not happen quickly…

Asking the bbc to keep you abreast of the Nat gas market is like asking the pope for recommendations on a jazz mag :0

Use this

https://www.theice.com/products/910/UK-Natural-Gas-Futures/data?marketId=5253319

And bear in mind….there is very very little physical delivery of gas traded at spot. It’s for future delivery. And gas ALWAYS is lower in summer as we use less. But look what happens to the future price for September 2022.

Now calm down, take a breath and relax.

You have to ignore the screen spot rate as pretty much nothing trades there for physical delivery

The current curve is as per below (p per therm)
June 22 174p
July 22 delivery 194p
Aug 22 delivery 212p
Sep 22 delivery 223.5p
Oct 22 delivery 235p
Q4 22 delivery 244p
Q1 23 delivery 248p

….even the summer 24 co tea this 140p!!!!!!

So the futures market is telling us gas prices are staying high for a long time and we should not sh it the bed cos the spot is lower.

Let’s put some numbers on this all

Shares outstanding 70.6m
Current share price 1.51
Mkt cap = 106.46

So essentially trading at around the level of cash we hold. So what is the mkt saying? It’s basically pricing in that we lose all or most of that cash via unfavourable dhsc ruling or just via cash burn from operations with no incremental increase in business performance from capex or investing the cash.

If we look forward to that 5 year target. 100m revs and say 25% ebitda margin would give 25m ebitda and I would think a valuation of 10-15x EV / EBITDA. So that is an enterprise value of 250-375m.

If we assume that we do have no or minimal cash at this time the mkt cap will equal the enterprise value. As such with 70.6m shares it would equate to a share price of 3.50 to 5.30.

If we did not burn cash and the company was able to defend successfully against the new dhsc claim then the EV would go up by 100m (the current cash pile) which would give implied share price range of 5.0-6.75.

On a bull case where we win against the dhsc and get out 40 odd million back and add this to current 100m ish cash the share price/ valuation range changes to 5.50 to 7.30 per share. Albeit in 4-5 years.

So what can we say?

Is this ever getting back yo 10+? No. Not sure if n this 5 year horizon.
Is the downside of an unfavourable dhsc case priced in? Largely.
Are there any near term catalyst to send sp higher? Not really. Only dhsc and we have no clue there.

Would obviously be a rattle lower if we had to pay dhsc claim money back but it looks like much of it is priced in as the current market cap = the cash balance and thus the enterprise value is ZERO. That is saying the IP, patents, are frastructure, know how, sales and distribution etc is worthless to the mkt. this is just a cash shell. Why? Cos of dhsc!!!

Basically the fate of the sp is still dependant on this issue and it’s hard to price as we dont know what the exact issue is or a time frame for resolution.

It’s a hard investment to hold given that. And I think the worry that you sell and then next week dhsc is solved is what keeps people here. As you would kick yourselves on a resolution as it would easily double if not treble in a click of fingers if even just a case of we won’t claim for the 40m and you don’t claim for a refund was agreed.

I’m debating what to do with my holding personally. Will wait for the call and then make a decision as there are no near term catalysts here pry from dhsc. And that is a black box.