Member Info for tedmak

I think this stock, along with other majors, has a problem.
The strategy update imho was disastrous. They basically said 'dont bother holding the stock if you want what you originally bought it for'
There will be a gradual selling off by the shareholders who want an integrated oil major and it will take time for them to get off the register before the new shareholders who believe in this transition idea of an 'Integrated Energy Major'
In the meantime, they have based the strategy on $60 oil, which is not there.
Chevron, to be fair to them, make the case for continuous liquids demand.
In stocks, as in life, if you don't love yourself, don't expect anyone else to love you.

Thanks, HI

The example of Vestas just shows how woefully late they are to the game.
I can't see how this strategy will induce any NEW buyers. It might convince opinion formers, but which new buyers.

On the plus side. it is bullish for the likes of SSE that a big whale will be getting its cheque book out.

I must say I am non-plussed by the strategy. If I can summarise, the board is saying thus:

We have invested a chunk of cash in our core expertise. We have decided to write off this investment at the low point of the cycle. We will now re-invest the cash flows from the healthy part of the asset base into other energy forms for which we do not have a competitive advantage.

For me this is daft. Surely, if I want a legacy supermajor (or else why would I hold BP), I might as well sell BP stock and buy Chevron or Exxon?
And if I want a renewables company, I would invest in SSE/Iberdrola or TRIG. Companies with a track record and a vision in the area.
The sheer scale of what they have to do to meet their targets means a huge shift into development of renewables (track record?) or buying up assets elsewhere.
Why not just run the business for cash and return the cash to shareholders?

I get the bit about shrinking the oil output. Just close down the exploration part of the business and the decline rates will take care of themselves. Doing the switch at the worst time when you didnt believe in it in January has little credibility.

In the current times, this concerns me not at all.
Previously (pre covid) this would have caused an aircraft on the ground (AOG), meaning compensation to the airline.
The planes are on the tarmac at the moment, anyway. so fixing it is a damn sight easier than it was if planes had huge load factors and frequencies.
The bigger issue is just WHEN we get back to decent plane operating hours.
I think that this is not possible until Q2 next year, so you have to take a view on how much cash flow is bled until then.

Am lookin g to buy lower down but plainly I run the risk the market will get in ahead of me.

Well the market cap yesterday was £3.6B.
A £2.75B capital raise means you have to stump up 75p for every £1 your stake is worth.
The rights issue price is neither here nor there, just how keen are to put the cash in. It is a ‘success’ that IAG are taking up their share (I reckon they would have underwritten the whole lot but it would have moved their stake up unacceptably).
Can’t see retail wanting to pile in, mind, but we knew this was coming.

From the latest results:

LNG contracts - valuation
The Group’s 20-year agreement with Cheniere, under which LNG is purchased from the Sabine Pass liquefaction plant in the US, has been assessed to determine if the contract should be considered onerous. The contract has an intrinsic value that depends heavily on the gas price spread between both Henry Hub and NBP, and Henry Hub and Asian LNG markets. During the period these spreads have narrowed considerably, meaning that the intrinsic value of the contract is now close to nil based on forecast spreads as at 30 June 2020. The Group is satisfied that value remains in the contract as a whole, but this is reliant on the capture of extrinsic value. Based on forecasts as at the reporting date, on an intrinsic-only basis, a 1% movement in the aforementioned spreads would change the estimated value of the contract by c.£35 million. As at 30 June 2020, the Group is committed to make minimum payments of $4.7 billion (£3.8 billion) over the remaining life of the arrangement. Further details of the Cheniere contract are provided in note 23 to the Annual Report and Accounts for the year ended 31 December 2019.

I estimate that if you strip out the US business, and the interest costs due to the sale price, EPS for 2020 will be 5.7p.
The upside for this company comes from trust in the management implementing the restructuring (redundancies). Whether it is justified remains to be seen but the asset side now is the Spirit business (high cost North Sea) and the stake in the British Energy nuclear business.
Fair enough if you are a bull but you are taking on a lot of faith.

Good thing about this is it takes away liquidity risk and gives the company time to sort itself out.

Intriguing in the statement is this:

In the financial year ended 31 December 2019, Direct Energy contributed Adjusted Operating Profit of £221 million ($282 million) and Profit for the year of £105 million ($134 million) to the Group. As at 30 June 2020, Direct Energy reported gross assets of £4.0 billion.

The selling price is £2.85 (debt free) and had operating profits of £221M last year. Seems like a good buy for NRG, but we are where we are.

It was the quarterly dividend.

MT, thanks for your constructive comments.
I think a raise of £2B would take away the risk of coming back later for funds. It would also be so large that shareholders could not be pre-emoted.
There is no point having an asset sale to raise funds as that would just be a fire sale at the moment.
We are here we are. I think it will be worth taking up the rights if/when they are issued but where the price goes in the meantime, I don’t have a firm idea on. I DO think there will be a rights issue IMHO

I keep reading about all this cash that RR has. Just looked at the end of 19 balance sheet and the current assets exceed current liabilities (payable within one year) by just over one billion. They will have been making bugger all from commercial engine servicing in the last for months and some airlines may even be dragging their feet on paying them (Virgin Atlantic are a customer I think).
Any RNS issued within the day is to be treated with the utmost severity.and if you think they are doing this to get their mates in at cheap prices you are deluding yourself. Is a shame as I like the company but their are troubling clouds out there.

The divi is only 32p. Why is it off even more than that?
Is it because this is a risk-on day?

If no deal is agreed, and there are a multitude of participants, the company goes into administration.
There NEEDS to be a breakthrough to avoid the default which is administration. The onus is skewed against shareholders today as it stands.
The announcement today is just to facilitate a fair market in the shares.

I have had a look again at the communication on 2nd June. Basically Trafford Centre is touch-and-go but looking bleak. as it is losing cash.
MetroCentre is looking like it has already breached covenants so, in essence, money wont be able to be freed to the centre to allow the other sites to function without the creditors, who are not the same for each site, agreeing.
It is a mess and the only way a creditor can ensure their rights is by instituting proceedings now.
The equity holders is last in priority.
The only 'value' the shares have is if you think there is going to be an imminent surge in physical retail sales. (In the current climate?).
It is worth an institution picking up the shares for less than a penny just to have a seat at the table but there is nothing here for the small shareholder.

https://ftalphaville.ft.com/2020/06/23/1592922884000/When-shareholder-activism-gets-physical/

I agree coaster.

If they were thinking of not paying the dividend, it would be communicated as soon as possible.
The business has net cash and it does not lend to the business sector, unlike banks. There is no prudential reason why they will be blocked from paying the dividend nor any cash conservation need.
The price is coming off with the market, no more. Fund managers are a geared play on the market due to the fees on AUM.
Am heartened they are buying shares back at these prices. Am fed up with companies that do buybacks at the highs and when the price slumps, do nothing.

They will gain for this year on the supply business.
Any idea they will be able to sell the nuclear ot E&P business this year is gone at these prices.
That was a part of the plan to reduce debt. The Dividend has to under threat

Covid is a big problem for RR as it reduces the flying time of the engines in service and hence try e frequency of the services which is where the real money is made on the engine side of the business.
Maybe the hot has been exaggerated in the share price, but there is a hit.
One silver lining is that with planes being idle, they should be able sort the problem engines out quickly, maybe even get them all sorted this year?

The equity raise will happen.
It will be underwritten to ensure the money is raised.
The underwriters will effectively dominate the share register.

There is a lot of similarity in the business with BP.

This page has some useful information to assess how the market is evolving:

https://www.bp.com/en/global/corporate/investors/results-and-reporting/trading-conditions-update.html

Refining seems to be holding up but gas has been whacked.

Gary, I concur
there is no point having a 7% yield if the thing falls 20%+.
I wouldn't touch this above 50p.
The nuclear power station exposure is big problem.
I can't see why anyone would want to buy the 20% stake in them.

The LNG outlook is a must view if you hold are are thinking of investing.
Is a big part of the business and the evolution from oil-linked to gas market based pricing is not widely understood.
Have a look for yourself but is a reason I will only be buying below £18