RE: Baron22 Dec 2023 09:36
Enquest is on a FCFY of 99-100% at current share price for 2024 (that's based on consensus estimates). Basically free cash anticipated over next year that's equivalent to it's market cap. I will start off by saying that I wish there were more such yields on the London Stock Exchange. As I mentioned earlier, ten of my twenty one holdings are at least double digit %.
There's reasons for high FCFYs though and usually something that's wrong fundamentally or it's a blazing opp. All of this will be very obvious to you pro's but not everyone is. Let's look elsewhere and at TGA for a moment. A couple of years back that was on the steepest of FCFYs and that multi bagged over and over. That however was ungeared, had a growth story, would and could distribute. My biggest winnings in this game replicated (those that have been following for years know the ones).
At Enquest, it has had it's volume trend to contend with as cashflows are prioritised to debt. Market multiples (Top FTSE FCFYs are dominated by O&G sector), pricing sensitivity and the UK have all hampered. That's besides the Swedish delist which is now behind.
Debt has tumbled though big time over the years. Net debt of $1.4bn in Feb '20 (which wasn't peak) and now it's c.$800m lower.
Leverage ratio adjustment, recent intro of PUTs adds a layer of comfort(!) and delivers pricing upside with a floor in place. The FCFY gets a very significant boost in FY25 as FPSO savings kick in. You can find the number!
In a strong oil back-drop, there is a route to net cash over the next couple of years. Your maths is to try and come up with what the volume is by then (last reported at 43,872boepd for the first 10 months) and the annualised cashflows. M&A Optionality obviously looks very different when they cross that line.
Management are keen to get a distribution out and recently said on their earnings call "So we're currently going through our business planning process, which will, when finalized, lay out our capital plans for next year. And I think it would be fair to say that we would look to have something in place by the time we come to the market with our 2023 full year results, which would be end of March 2024. So we're certainly looking to create a pathway for returns and create a mechanism for returns during 2024". Personally, I would favour them adding strength to the balance sheet and not doing anything on this front (yes, I'll be at odds with most)
Unless one is a big time bear on oil, it's certainly a interesting setup. Consensus for 2024 on P/E and EV/ebidta at 1.06x and 1.34x.
https://twitter.com/baroninvestment/status/1737426721702371587
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