The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
I’ll speculate that the delayed receipt of US$, due in February but not received until April, is related to the sharp depreciation of the naira at the end of January. It’s possible that to stabilise the currency, the government stopped businesses transferring US$ overseas. The naira has strengthened recently, maybe allowing dollar outflows to resume.
New RNS today. Payment due in Feb was just late it seems, no explanation given. Another payment due this month, so back on track.
Has anyone any thoughts on why the company has stopped all announcements? I’ve tried contacting them but got no reply. Silence must imply either good news or bad news (ie debt repayments have ceased). If the latter, surely the company should have announced that already? I’ve wondered whether our Directors would be open to a RTO of the borrower’s assets, whereby the borrower is able to strike out its debt, whilst getting a majority shareholding of the (UK listed) enlarged group. We shareholders exchange the loan for a minority holding of the entire oilfield (currently we get 8.65% of its revenues for a limited time). Some kind of transaction with the borrower would explain the silence; either of the kind I’ve described or simply a one-off payment to cancel the entire debt.
A 2p share price implies a mkt cap of £10mn, still a very substantial discount to the book value of the business. With the current oil price, the borrower will have no difficulty making the repayments.
I’ve been buying again today. The company now has an EV of less than £3mn but a monthly income stream of ca £400k with a total value of about £25mn, so about 5 years’ duration. The current mkt cap implies a discount rate of over 60% pa, which is nonsensical.
Today’s trade was a buy at below mid-price
That trade was mine. Including another buy today, I’ve now accumulated 1.4mn shares and might add more if there are any dips on sales. 0.4p per share annual dividends looks a reasonable target, implying a distribution of about 50% of FNK’s free cash flow. That’s a current dividend yield of about 50% and a p/e of about 1. Risk doesn’t look as great as implied by the current share price.
I bought 650k today @0.7p, and 350k yesterday. I imagine the 500k trade today was also a buy. I can’t imagine LOGI breaking the agreement; it’s too favourable for them and an international court case would surely follow, possibly freezing their entire income in the meantime (see the current SAVE dispute with the Chadian government). Our Directors are significant shareholders, so I doubt they will waste money - but may choose to prolong the company’s existence (and their salaries) by acquiring assets, rather than returning all funds to shareholders. That’s the largest risk from my perspective. But seen as an annuity, the value of the asset is not remotely reflected in the share price, that will surely change next year as regular LOGI payments continue. Patience should be rewarded.
The other alternative is that with strong electricity demand, a bounce back in PLF requires additional working capital in the short term, to finance the extra output. Remember PLFs were very low until recently. It’s likely though that the sharp fall in coal prices, hike in electricity prices and high PLFs will produce good profits and cashflow over the FY.
Indian production of non-coking coal increased by about 100mn tonnes to 830mn tonnes in FY 2023 and is targeted to increase by another 100mn tonnes this year; the extra output will be targeted at meeting the needs of gencos. Further large increases in production are planned for the medium term. By contrast, there is currently a ban on new coal power plants. So the domestic power market is rapidly transitioning to one of excess coal supply and sharply falling production costs, leading to cheaper energy. OPG should be a major beneficiary, in terms of high PLFs and cheap inputs.
The June NCI was published today. The full release can be found on the Coal Ministry website under the National Authority section. Middle grade non-coking coal prices declined 10% from April to June. Auction prices (which OPG hopefully is participating in) will have declined more sharply.
Let’s hope that there are further Director purchases so the numbers become more meaningful. I wouldn’t object to an eventual offer from the Gupta family, I doubt the institutional shareholders would accept a lowball offer.
True, many companies allocate surplus capital to buybacks as well as dividends, especially in situations where they can utilise historical losses to avoid paying any corporation tax - so shareholder distributions via buybacks incur no tax at all. However, surely that doesn’t apply here as it’s not a buyback but a shareholder purchase? You could argue that a majority shareholder buying more shares cheaply reduces the cost of taking the business private, but that’s not a tax issue. I don’t know enough about the tax system to know how share purchases by the Gupta family are tax efficient.
I don’t think they’ll buy back shares prior to an announcement of such a policy, likely to be in the annual results in September. It’s not certain they’ll do anything even then, but the trading update was surely a hint that some investor friendly policies are imminent. I imagine the new activist institutional shareholder has been talking to management. Wish we had the same opportunity!
I mentioned a sharp decline in prices in April. Worth pointing out that is based on CIL auction prices (OPG sources its domestic coal from such auctions), source Coalmint, whereas the broader NCI (calculated from fuel supply agreements, imports and auctions) showed a slight increase in April. That’s because auction prices (the source of marginal coal supplies) are falling very sharply indeed due to excess supply. By contrast FSAs are more like short term fixed price contracts. So the May NCI figures are likely to be an underestimate of the decline in prices faced by OPG when purchasing domestic (and imported?) coal.
NCI for May has been published. The aggregate index for the average market mine price of imported and domestic non-coking coal declined nearly 7% in the month to May, and by over one third in the 12 months to May. April had already seen a sharp decline on March. This should result in profitable margins for all power generation, and hence sustained high PLFs. So the new FY has started incredibly well.
I don’t think Cenkos is the least bit interested in OPG, there are almost no institutional investors in the company. You’re right, the latest report didn’t even take account of known events, including a very sharp decline in domestic and Indonesian coal prices, and the government mandate to imported coal gencos. I’m thinking seriously about attending the AGM this year and spending as much time as I can questioning management. There is much to learn about the company’s operations.
I emailed the author of the latest report with some queries, but he was unable to answer them as Cenkos isn’t regulated to engage with private investors!! That tells you a lot about how the system is rigged. Is your monikor related to President Reagan by any chance?
Cenkos published an update on about 20 June, after publication of the Trading Update. Their estimates for FY 23 were informed by discussions with OPG and were no doubt trustworthy. But their forecasts for FY 24 were rubbish and completely misleading. They caused at least one holder to sell up.
The government mandate for gencos using imported coal to produce at maximum capacity was extended to September, ie the whole of H1 FY 24. My understanding is that full capacity for OPG is normally around 75%, in part because wind power gencos take priority over coal power competitors in supplying Tangedco. You raise a good point about the margins OPG earns on sales to Tangedco. We agree that they are on a cost plus basis, but the size of the margin is commercial in confidence. Direct sales to industrial customers I believe are at fixed prices negotiated on ca 3-year contracts, so margins increase as coal prices fall. Your estimates of EBITDA could be right, but I personally don’t want to tie myself to any particular numbers. We agree that all factors are pointing to a sharp recovery in profits this year.