Member Info for tichtich

Possible reasons for downgrade:

- Possible tariffs on metals. (I think Trump has only announced tariffs on aluminium and steel so far, but he could add others.)

- Increased probability of recession, due to broad tariffs and possibly other factors.

- Increased geopolitical risks.

I'm not saying I necessarily agree that the downgrade is justified, though I think the Trump wrecking ball increases all sorts of risks.

According to the RNS...

"A Dowlais Shareholder should only be subject to U.S. Deemed Dividend Tax if the Dowlais Shareholder receives cash under the Combination and also owns AAM Shares. Further, even if a Dowlais Shareholder also owns AAM Shares, it should only be subject to U.S. Deemed Dividend Tax if the Dowlais Shareholder owns (i) an equivalent or greater percentage of AAM Shares than Dowlais Shares at Completion, and (ii) its indirect ownership interest in Dowlais is not therefore reduced as a result of the Combination, taking into account certain constructive ownership rules and the AAM Shares received as consideration in the Combination."

So it sounds like you won't have to pay tax if you don't already own any AAM shares.

Personally, my DWL shares are in a SIPP, which is exempt from US withholding tax. Outside a SIPP you should be able to reduce any withholding tax from 30% to 15% by filling in a W8-BEN form (or the online equivalent) with your investment platform. Hopefully there won't be any tax payable anyway, but it might be a good idea to fill in the form now, just in case.

"As regards buybacks, why retire lower cost debt rather than shares at 8%+ yield?"

Some of UKW's more recent debt pays interest at over 7%, and any debt maturing in the near future will probably be rolled over at a rate similar to that. On the other hand, if you believe the projected cash flows used in the NAV calculation, the expected rate of return on NAV is 10%, and even higher on current share price. Certainly, buybacks are better value if you are confident about the projections. But reducing debt might be the safer option, if you want to defend against downside risk.

P.S. I should perhaps add a reminder that the risk of lower electricity prices is ameliorated by the fact that about half of UKW's revenues are contractually fixed (linked to inflation) and not influenced by market prices.

I agree it's all (well mostly) about energy prices. But bear in mind that the current pricing system, which links the electricity price to the price of gas, will likely not continue indefinitely. There's been a lot of talk about a switch to"zonal" pricing, which will likely reduce the electricity price in the zones where wind power is most plentiful and often least needed. So a lot depends on the details of such a system, and that's likely to be influenced by political factors. Anyway, that's my main concern.

From the RNS:

"If any dividend or other distribution is declared, made, or paid in respect of any BBGI Shares on or after the date of this Announcement, Bidco reserves the right to reduce the Offer Price by the amount of such dividend or distribution. In such circumstances, BBGI Shareholders would be entitled to retain any such dividend or distribution."

So, even if there is a dividend in October (which seems unlikely to me), the amount will probably be deducted from the purchase price. In other words, 147.5p is all we will receive in total.

So I agree, it's a choice between selling now or holding on for about a 3% gain over about 6 months. I suppose that's better than you can earn on cash. So I'll hold unless I spot something else I really want to buy with the money.

Agree with what others have said. INPP never looked quite as attractive to me as BBGI, but I came close to buying it a couple of days ago. Pity I didn't! I might wait a bit and see if it comes down again.

I only bought this a couple of weeks ago, so it's a nice quick profit. But now I've got to find something else to replace it. So mixed feelings.

In case anyone else is interested, I just calculated the expected rate of return (IRR), given some conservative assumptions. I assumed...

- $67.6m cash on hand now (the last reported figure).

- Share count: 182m.

- Current share price: £1.52, or $1.90 at current exchange rate.

- Remaining lifetime of assets: 11 years. (For simplicity I've treated Kounrad and Sasa as a single mine with a remaining life about half way between the two.)

- FCF remains constant for remainder of lifetime at $30m per half year (based on the last reported figure).

- Dividend remains constant for remainder of lifetime at 18p p.a.

- Surplus FCF (after dividend) is accumulated as cash.

- Interest earned on cash at 4%.

- No good new investments can be found, so all remaining cash is paid out as an extra dividend at end of lifetime.

- Non-cash assets have zero value at end of lifetime.

With these assumptions, my spreadsheet gives an IRR of 12.1%.

If we assume that FCF and dividend rise with inflation at 3%, the IRR becomes 14.0% nominal, or 11.0% real.

OK, I get it now. He realised you meant USA, but was turning your words back at you. Doesn't make much sense, because our leaders may be incompetent, but they're not a bunch of extremists, habitual liars and conspiracy theorists out to dismantle democracy and the rule of law.

"I totally agree with the lunatics running the UK, "

I assumed he was talking about the USA.

From a strictly rational point of view, what we paid for our shares in the past should have no bearing on our future expectations and decisions. The only choice we have is whether to buy, hold or sell at the current price, so we should only consider the expected future returns on the current price. But it's human nature to "settle for" a good gain on purchase price, and miss out on subsequent gains, or to hold on too long to a loser rather than admit a loss on purchase price. Been there, done that, and I must admit I would be sorely tempted to sell at 10p (having an average purchase price of 7p).

By the way, I see a lot of people on these boards talk about "averaging down" after a share price has fallen. In my view, it's a mistake to think that way, as it seems like the same sort of error: thinking about the price you paid when making current decisions. I prefer instead to just ask myself the question: is this lower price sufficiently attractive to justify the risk of additional concentration in this one stock? My recent answer has been "no", but that's based on my own relatively low risk tolerance. YMMV.

In addition to the factors that are affecting other infrastructure funds, and particularly renewables, the market probably thinks that the US storage assets will be adversely affected by tariffs on Mexico, as they are used to store oil imported from Mexico for refining.

"apart from the div. they are hopeless."

The purpose of a company is to make profits and pay them out to shareholders in the form of dividends (and possibly share buybacks). So, if a company is paying out good dividends, and has good prospects for continuing to do so, then it's doing a good job. If you're a long term investor, then as long as the company's long term dividend prospects remain good, it doesn't matter what happens to the share price after you've bought, because you're not selling. (Of course, it's not good if the share price has gone down because the company's long term dividends prospects have got worse. But, for a long term investor, it's the worsening of the long term dividend prospects that's the underlying problem, not the fall in the share price.)

If you're a short term investor, a trader, or a speculator, you may see things differently.

Governments only have limited ability to get what they want in terms of inflation and interest rates. Moreover, some of his policies (such as tariffs) seem more likely to increase prices. So I would suggest that his intent may not be a very useful guide to what will actually happen. I'd like to see lower inflation and interest rates, but I'm not very optimistic.

@Therosy1

Thanks for the correction. Why can't the whole world just use pounds? It would make life much simpler.

By the way, I just did a rough calculation of the per share value of the expected tax credits. GSF values the credits at $60-80m. Say $70m. Divided by 505m shares, that's about 14p per share. More than I expected! How generous Mr Biden was! There's quite a lot riding on whether we get the credits.

@Lsimo

You might like to note that most infrastructure funds (including GSF) calculate their NAV based on a discounted cash flow (DFC) analysis. In other words, they add up all the expected future inflows and outflows, discounting them by a discount rate to get a net present value (NPV). (To be more precise, they generally don't count debt interest and repayment as outflows to be discounted. They just value the debt at its current amount.)

So the NAV depends critically on estimates of future revenues, and apparently Mr Market thinks those estimates are overoptimistic.

@Therosy1

"Anyone find any holes in my calculations?"

Not a hole, but you should note that your dividend cover calculation is based on operational EBITDA. Looking at the last interim report, there are 2 dividend cover figures:

Operational EBITDA for the six month period £10.9m

Total Fund earnings for the six month period £6.1m

Operational dividend cover for the period 0.62x

Total Fund dividend cover for the period 0.35x

So there are 2 possible ways of calculating dividend cover, and they differ significantly. Your calculated cover is the higher of the 2 possible figures.

In calculating a dividend cover, I would certainly want to take into account all repeating cash costs, including interest, not just operational costs. But I suspect that most of the difference between operational EBITDA and total fund earnings is made up of depreciation. If I want to know about the long run viability of the dividend, I would want to take into account a sensible measure of depreciation. However, I believe that accounting rules typically require depreciation to be spread over a period that's too short for long-lived assets, meaning that depreciation costs may be exaggerated. Most other renewable funds (such as UKW, which I have a large position in) don't include depreciation in their declared dividend cover, but to me that means that the cover is exaggerated, since a portion of the surplus (over declared cover) needs to be reinvested just to make up for the eventual expiry of the assets. This issue is more significant for a battery storage fund, whose assets are shorter lived than wind farms (for example).

In short, for long term viability of the dividend, I would be looking for an operational dividend cover much higher than 1.

I would also add that past revenue forecasts have turned out to be overoptimistic. But perhaps the forecasters have learned their lesson and have done better this time!

In my own portfolio analysis spreadsheet, where I try to estimate long-term returns, I've pessimistically marked GSF as having a long term dividend of only 4p p.a., rising with inflation. If it turns out better than that, so much the better!

“This is far from a done deal and there is a real chance that Dowlais shareholders push back for a better offer. The fact the shares only traded at 73.8p versus an implied 85.2p takeout price (which includes up to 2.8p dividend) suggests the market doesn’t believe the deal will succeed in its current form.

“The bid premium looks very skinny at 25%. AJ Bell calculates the average bid premium for UK-listed stocks was 47% in 2024 and 52% in 2023. AAM’s offer values Dowlais at 4.1 times EV/EBITDA which is bargain basement territory, essentially valuing Dowlais as if it had failed its MOT and was on the verge of being put on the scrap heap.

“There is also the fact AAM’s offer is structured in cash and shares. Investors typically prefer hard cash in their pocket. The biggest shareholders are asset managers Fidelity, Select Equity, T. Rowe Price, Capital Research Global Investors and Aberforth Partners. They’re looking to make the strongest returns on their investment as possible and won’t be pushovers.

“Dowlais’ share price might have gone in reverse for much of its short life as a listed entity, but it has been moving upwards since last November which suggests investors were starting to gain more confidence in the business. They may not want to see it join forces with a US-listed company at this fork in the road.”

https://www.ajbell.co.uk/articles/investmentarticles/284970/markets-await-rates-and-tech-results-lvmh-update-lacks-sparkle

I'll probably vote against, FWIW.