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| Share Name | Share Symbol | Market | Stock Type |
|---|---|---|---|
| Portland Gas | PTG | London | Ordinary Share |
| Price Change | Price Change % | Share Price | Last Trade
|
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|---|---|---|---|---|
| 0.00 | 0.00% | 90.00 | 01:00:00 |
| Open Price | Low Price | High Price | Close Price | Previous Close |
|---|---|---|---|---|
| 90.00 |
| Top Posts |
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Posted at 25/11/2009 12:55 by eacn guidfarr,It is indeed PTG. The stock lending position in 2009 has been as follows: ................Avg. Lending........Avg. shares in Crest......% Lent.......SP (p) Jan-09.............. Feb-09.............. Mar-09...........8,7 Apr-09...........8,8 May-09.......2,315,2 Jun-09......15,000,0 Jul-09......15,113,0 Aug-09......16,300,0 Sep-09......16,300,0 Oct-09......16,300,0 My guess is that Credit Suisse have bundled their stock into a structured vehicle that locks in a share price of around 100p but gives them a share in the upside if the share price spikes as and when PTG secure funding for Portland. I do not think this has led to direct selling of stock in the market (there has not been sufficient volume). The other possibility is that Credit Suisse have lent the stock to another of their funds or used it as collateral. |
Posted at 05/11/2009 11:58 by eacn A good day for PTG. The EIB "Projects to be Financed" list has 655 entries, showing the approval status. The most recent application to have received approval was made on 06.10.09 and a rough count suggests that over half of applications made in June and July 2009 are either approved or signed (69 out of 110), with a higher proportion for earlier applications (323 out of 389), see: No applications on this list are marked as rejected. From the June/July sample it would appear that over 50% of applications are approved or signed within 4 months. The implication is that if you get on the list you have a 80% plus chance of obtaining approval and that approval can be expected in c. 60% of cases within 6 months. So PTG could expect a decision by Q2 2010. The £2.5M placing, in which I participated at £1, makes a great deal of sense, since it relieves any fund raising pressure on PTG. While the company have not said how much extra time is bought as a result of the fund raising, my calculation is that it should provide sufficient cash to allow the business to continue activities until end 2010 and probably to the end of the Q1 2011. If so this will allow the board to sign the going concern statement on the 2010 accounts with impunity. While the gas market is weak and the recent IEA report suggest that the global gas glut will continue for years to come, there must be a good chance that (post election) the regulator or HMG will require major UK gas suppliers to acquire rights to gas storage in order to ensure energy security. If that were to happen, PTG would be pretty much home and dry. I am slightly surprised that there has not been more of a price reaction to this news, since it places PTG in a much stronger position and de-risks the ongoing funding round. While there is still risk, it is materially diminished. |
Posted at 12/10/2009 21:04 by eacn I suspect many PIs will be dissappointed by the IMS. At best PTG will announce that it has received expressions of interest from half a dozen or so prospective investors, and at worst there will be nothing concrete to be said. Q1 2010 remains the target date for completion of this funding round, and I doubt that funding will be secured before that date. European development funding could change all that, but I would be surprised to hear of any firm committments at this stage. The share price performance is a response to speculation about funding, press comment and the recent Ofgem energy review. The problem remains that without greater certainty from HMG on future UK energy policy, returns from investment in gas storage remain uncertain. Although, imo, Portland offers greater security of returns than virtually any other proposed or planned UK gas storage project, investors remain nervous that HMG will change the rules and wipe out their prospective double digit IRRs. What is becoming clear is that if PTG do obtain funding on competitive terms, then the market may value this stock at nearer 400p than 200p. If that is true, then imo the risk reward ratio for PTG even at 130p remains attractive. DYOR, etc. |
Posted at 14/7/2009 12:17 by eacn Chrismez, PTG haven't got a lot to lose by funding £300k of construction using a debenture. If they gain funding by 31.01.2010 (let's call it their longstop date) then the debenture isn't redeemed and they hand out the cash. If the funding isn't in place well there was going to be dilution anyway. Furthermore keeping the project "on track" has a big effect on NPV, so making sure that construction continues according to timetable is literally worth tens of millions in any funding formula. This is why I expect PTG to enter into a similar arangement for the pipeline: a two year delay in pipeline construction would have a major effect on valuation. As for the lease payments, again it is all about bolstering PTG's negotiating position. If it looks like they are going to run out of cash funders will simply sit on their hands and wait. A 1.3% dilution to conserve 750k of cash and buy another quarter without needing to fund raise makes sense. I calculate that this move should allow PTG to keep going until end Q2 2010 without needing to raise further cash. Buying further time also buys newsflow. By Q2 2010 we could have positive news on Larne, which, incidentally, I expect to be easier to fund than Portland, based on the company's latest figures. With Larne funded, PTG can probably survive for a prolonged period by either diluting their interest in Larne, securitising that interest in some form, or simply borrowing against the asset. Funding is most certainly not guaranteed at this stage and it is therefore imperative that the company preserves cash and does all that it can to ensure that it is not negotiating with its back against the wall even if that means limited dilution. |
Posted at 24/4/2009 08:23 by eacn Holism,PTG are looking for debt to provide 60% of project finance, and for the debt to be secured by long term storage contracts with equity partners in the Portland holding company. PTG are looking for the EIB (and potentially others) to provide the debt finance. They are projecting that this finance will be available at 8%, which PTG believes to be a market rate for a project of this kind (i.e. relatively low risk - the rate for proven oil and gas field developments would be c. 10%). Of course once Portland is up and running you would expect the company to refinance the debt on improved terms, but although the premium above LIBOR should significantly reduce, the suspicion is that interest rates will be a great deal higher in 2013 than they are today, so 8% as a whole of life rate for the term loan is probably a prudent assumption. It is worth noting that the 8% assumption only holds true if the counterparties to the long term storage contracts offer a solid covenant. This implies that PTG need to be dealing with major players with sound balance sheets. On the face of it PTG should not have a problem attracting such partners given that the projected IRR's are high (between 19% and 25%). I want to satisfy myself that these IRRs are valid for a range of sensitivities, but assuming that they are, that sort of rate of return should prove very attractive if you believe that the development risk (and potential for over-run) is relatively low and that future gas storage prices will not collapse. The evidence that PTG have assembled on both counts strongly supports these assumptions. The fact that players such as Centrica are buying up gas storage assets (albeit all depleted fields) adds weight to the argument. The big risk is that PTG will fail to secure finance before they run out of cash. If PTG is to believed, this is a negligible risk. At the recent result presentation Hindle indicated that there would be no equity fund raising in 2009 and that such a fund raising was not part of their plans at the PTG level, full stop. Given that there was no going concern qualification in the results statement (a fact alluded to by Hindle and the FD at the presentation) indicates that the company has sufficient cash to see it through to end Q1 2010. Even if funding has not been concluded at that stage, it might be possible to bridge any shortfall if a deal was in process. An acid test of progress will come this summer. If PTG order the pipeline materials, it will indicate that they are fairly confident of closing a deal before end Q1 2010. The pipeline needs to be built in 2010 because the Olympic sailing will be using the bay in 2011 and 2012. PTG are understandably keen to get the piepline completed before these activities intervene. Pipeline costs are c. £12M to £13M and PTG have indicated that they can finance these activities without recourse to shareholders if funding discussions are on track. The implication is that the contractors will chip in finance since they are short of work. |
Posted at 21/4/2009 14:29 by eacn money4me,I have now had a first look at the new third party valuation data provided by PTG. This splits down into: an analysis of the future market for gas storage; a projection for gas storage prices; and an audit of the PTG valuation model. PTG are projecting an intrinsic storage price of 22p/therm and an extrinsic gas storage price in the base case of 18p for Portland, rising to 28p for Larne. PTG do not believe that LNG will dent these figures; indeed they argue that LNG will increase volatility (increasing extrinsic revenues). I am reasonably comfortable with these projections, but would expect in the longer term (i.e. post 2020) that volatility and intrinsic prices will fall as gas storage volumes increase. Post 2020 variations, however, are less important in the NPV valuation, and PTG argue that lack of investment in gas storage today will increase volatility and intrinsic prices in the coming decade well beyond their 'conservative' base line price assumptions. The valuation model appears straightforward, as does the audit. As you would expect the key variables are the project cost, the discount rate, the equity to debt split and the interest rate. There would appear to be no adjustment for inflation in the PTG model (in either prices or costs). I note that opex has fallen from 6p a therm to roughly 4.3p a therm (assumes 1.5 cycles p.a. which is significantly less than the theoretical potential of 3.5). I have not validated the NPVs included in the PTG presentation based upon this model, but would expect these to be consistent with their model. I will, however, attempt to replicate the PTG model for completeness. I prefer my own model, which allows for variations in pricing and costs, but it is useful to see how PTG have arrived at their numbers. The PTG model would appear to be out of date, since it takes only limited account of the funding structure proposed in the interims presentation. If I understand this correctly, PTG proposes to raise 60% of the project cost as debt (i.e. c. £270M), with the remaining £180M funded through equity. The debt is to be secured against long term storage contracts entered into by the new equity holders. PTG proposes to sell c. 40% of the equity in the Portland holding company (a subsidiary of PTG) and is not proposing to dilute existing PTG shareholders. Indeed PTG have made clear that they have no plans for equity dilution at the PTG level. At the presentation PTG stated that the pricing of the long term storage contracts would be set at a level that allowed the Portland holding company to service the debt and cover other cashflows (e.g. tax, etc.), but no more. Not all buyers of equity would be expected to enter into storage contracts (some buyers might be financial investors viz. infrastructure funds) but the implication is that sufficient storage will be pre-sold to secure the entire debt. To illustrate this proposal, say that the interest rate on the debt is 8% for a 10 year term loan of £450M. Then the debt service cost per annum is c. £67M, which is equivalent to 18.6p / therm on 360M therms (1bcm of gas). The PTG proposal is to sell long term storage contracts to reputable third parties with good credit ratings for some or all of the 360M therms capacity at 18.6p/therm and to use these contracts as security for the debt. Buyers of these contracts will be also required to subscribe for equity in the Portland holding company and to pay a price for this equity that will reflect the disparity between the 18.6p/therm storage price and the true market value of Portland storage. In the PTG base case, where true market value is 40p/therm, the simplistic price for this equity (assuming all contracts are at 18.6p/therm and all the equity is sold) is the NPV of 21.4p/therm for 360M therms for the length of the contracts (say 20 years), with the discount rate set at the required hurdle rate (IRR). This amounts to c. £375M for a hurdle rate of 20%, and falls to c. £200M for the same hurdle rate but with the true market value per therm of storage reduced to 30p. In the scenario described the bulk of this funding would revert to PTG, or a subsidiary of PTG, and might well be subject to a tax charge (although PTG appear to have been doing some tax planning for this eventuality). The figures above are lower than those quoted by PTG, but their numbers were based upon the holding company investing £180M with a loan of £270M and with only 40% of the equity sold. I have yet to validate these numbers. |
Posted at 08/4/2009 22:09 by eacn I assume posters have seen the PTG presentation given to the London Energy group on 25.03.2009 a copy of which has been posted on the PTG web site.Page 23 is worth further consideration. The slide suggests that PTG is contemplating a 40% equity 60% debt solution to the project finance problem. That implies that they are proposing to sell £180M of shares and raise a further £270M in debt to fund the £450M project cost. Quoted IRR's range from 19% to 25% for storage prices of between 30p and 40p. Quoted NPVs, at an 8% discount rate, range from £332M to £542M. I have had limited success in replicating these figures. The best fit I could get was on the basis that NPVs are calculated over 20 years, with capacity coming on stream at 25% a year from 2013 (i.e. full capacity in 2016), inflation set at 3% p.a. (with storage prices starting at the stated targets in 2013), and debt repaid over 20 years at an average interest rate of 8%. Unfortunately this gives lower IRR's and NPV's than those suggested by PTG: My figures gave IRR's of 14% and 20% and NPV's of £216M and £371M (at a discount rate of 8%) respectively for the 30p and 40p scenarios. My figures imply that existing equity in the Portland projecct is worth between £36M (51p) and £191M (272p per share) in these two scenarios. The equivalent PTG figures would be £152M (216p) and £362M (514p). This is of course a purely academic discussion: if there are no bankers prepared to lend the project £270M at 8% or investors prepared to stump up £180M for additional equity in PTG at these valuations then the calculations are irrelevant. What investors need to know is: (a) What progress has been made on finding finance / JV partners? (b) What measures have been taken to conserve cash in the interim? (c) Whether the PTG board is prepared to sell the Portland asset, and if not why not? (d) How Portland arrived at the figures included in the London Energy Group presentation and why they believe that a 40% equity 60% debt deal is the right mix? (e) Why Centrica and others are buying gas storage assets but appear uninterested in Portland? It is some time since we had an update from the company, and given the continuing delay in securing projecct finance it would seem an appropriate juncture at which to provide an investor update. |
Posted at 06/11/2008 07:57 by eacn Clearsoup,Re: post 761, thanks for the sentiment. My investment in PTG makes up less than 5% of my active trading portfolio and less than 2% of my assets so PTG's fall while painful is not terminal. Taking into account share sales made at the time that planning permission was granted, I am currently just under 40% down on my PTG investment, with a break even at around 210p. I remain of the view that if the board of PTG saw the light and abandoned the "independent gas storage" business model, they could yet realize at least 200p for Portland, possibly more. My overall reaction to yesterday's RNS was in fact relief. Any sort of JV, particularly one with multiple partners, was never an attractive option for shareholders. As I said in a post a few weeks ago, the PTG board needed to take a timeout on the process and reconsider the options, which is what I hope they will now do. By opting for the JV route PTG was consigning its share price to the doldrums for years to come. An independent gas storage business, as opposed to a business that finds and develops gas storage projects for sale, should rightly be valued on a multiple of earnings not on the value of its assets. As such a JV would not generate value for shareholders for years to come, whereas an outright sale should generate value in the next year or two. My thinking has always been that short term cash in the hand is generally preferable to future value based upon projected cashflows in years to come. When meaningful projected cashflows are as far away as 2015, I would favour short term cash unless the discount rate for future cashflows is greater than 20%. So, for example, if PTG was to generate post tax revenues of say £30M in 2015 from a 30% share in Portland, then on a PE of 8 PTG would be worth £240M in 2015 or roughly £3 a share assuming 80 million shares in issue (i.e. assuming limited further dilution). If today's share price was, say, 80p then that implies that the projected future fair value of £3 is being discounted at a rate of 20% p.a. (i.e. £3 in 2015 is equivalent to 80p in today's money if you use a discount rate of 20%). On that basis I would on balance prefer to hold on for £3 in 2015 rather than sell Portland for the equivalent of 80p. However, that comparison ignores the option of selling Portland for cash in the short term. Today's share price reflects the fact that the company continues to issue RNS's which reject that option. The insistence on keeping a 50% share in the asset is what is killing both the negotiations and the SP, because the potential JV partners aren't prepared to stump up for all the development costs on that basis and PTG is not in a position to raise cash to make up the difference. PTG need to face facts. The company is not going to raise the £100 million or so of finance it needs to retain a 50% stake in 2009 without massive dilution of shareholders. That will not generate long term value for existing shareholders, and may well be opposed by Credit Suisse. Sooner or later the board is going to realize that a sale is the only option, and at that point the share price should rerate to reflect the potential for short term gain. 80p a share implies that Portland is worth £64 million, which is less than the £75 million price paid for Caythorpe only a few weeks ago, a much smaller facility with an equivalent cycle time to Portland. I find it difficult to believe that Portland could not be sold for at least £150 million today, even in these difficult markets, which is equivalent to 190p a share. I note that Daniel Stewart was only recently suggesting a price of 250p a share or c. £200 million for Portland, based on a trade sale. If, however, the board persist in pursuing the "independent gas storage" model, and try to retain a 50% share in Portland, the share price will decline further and there is a good chance that shareholders will baulk at any dilutive fundraising. Institutional shareholders are rarely investors for the long term (i.e. for 5 or more years) and Credit Suisse's record suggests that they, quite reasonably, have shorter investment horizons. I would not be in the least surprised to find out that they have just sold down their stake in Encore, and I would not be surprised if they baulked at a plan for PTG which involved significant dilution. My major mistake has been in failing to take the company at its word: I assumed that they would sell Portland if the opportunity was there, whereas they have consistently said that they wanted to be an independent gas storage business. These two different approaches make a world of difference to the share price. |
Posted at 18/9/2008 14:00 by eacn holism,Asset auctions often develop an internal logic of their own, which has little or no connection to the gyrations in the public markets. It may well be that the bidders for Portland (and the RNS clearly suggests that there are more than one) will be wrapped up in their NPVs and IRRs, rather than relying on the market to provide a valuation. While I think the placing was a mistake, I remain of the view that PTG should be able to raise 100% of the capex funding for Portland in return for a revenue share, regardless of the credit crunch. Strangely, it remains possible to borrow money for longer term infrastructure projects from UK banks, despite the credit crunch. I sit on a board that has recently borrowed an 8 digit sum from a UK lender, for just such a project, and without offering security. Real world lending is not yet dead. An important question is how will we know what the terms of a farm in deal mean for shareholders? When brokers talk about a farm in deal being worth 400p a share, or some such, what exactly do they mean? The answer is that such terms are just shorthand for a complex set of assumptions. With Portland the key variables are future storage rates, operating costs and bidder's minimum acceptable risked rates of return ("hurdle rates"). There are a variety of views in the market on all three variables. Seymour Pierce have modelled on the basis that storage rates will be constant in real terms at 40p/therm (in today's money), with the risk being a 10% escalation in capex, a 15% escalation in projected day 1 operating costs in real terms and a 3% inflation rate. On that basis the post tax risked rate of return for bidders would be around 13% for a 50% revenue share. On an unrisked basis that would be a 14% IRR. The company, on the other hand, appear to take the view that storage rates will remain relatively flat until 2012, then rise rapidly in the period up to 2020, flattening off thereafter in real terms. The company appears to assume a minimum starting rate of 30p/therm in 2011, rising to 41p by 2014, with average 5% p.a. real increases in prices till 2019, and none thereafter. These prices, it is claimed, are minima and do not reflect the extrinsic premium that PTG expect to be able to command. The company also assumes that operating costs will be 6p/therm (presumably in today's money - this is higher than the Seymour Pierce figure), although these should be offset by operational charges (the Seymour Pierce operational cost may be lower than the company's because of this factor, which is bundled into the SBU fee structure, where there are additional charges for injection and removal of gas). Ignoring any offset from operational charges, the company's figures also imply a post tax risked rate of return for a 50% revenue share of around 12.5%. As I understand it, Daniel Stewart, don't differ greatly on future storage prices, but expect bidders to demand a greater risked return. The following table sets out my calculation of the revised revenue share required by the bidder to deliver a given risked rate of return ("IRR"), using either the company's or Seymour Pierce's assumptions on storage rates, costs and cost risks: Implied Revenue Share for Bidder Target IRR share price Assumptions Company Assumption 12.5% 48% 50% 15% 62% 65% 17.5% 77% 80% Any valuation of PTG is clearly linked to its ultimate revenue share from Portland. While I would expect bidders to value their potential share of Portland on the basis of a target IRR, I am less convinced that using the converse of an IRR, that is an NPV, to calculate a share price valuation for PTG is meaningful. That said, it is a starting point. An alternative would be to calculate the profits in say 2014 and calculate a market cap based on a multiple of dividend yield (i.e. a utility type PE) and then calculate this value in today's money. The problem with both approaches is that we are trying to value an asset based on future expectations of cashflows, which are always prone to a high degree of error and uncertainty (in both directions). Such methods give a very wide spread of valuations depending upon the input assumptions. My preferred method is to use a takeout valuation: if the bidder is prepared to invest up to £550M for X% of the post tax revenue share, it seems reasonable to assume that someone would be prepared to buy £550M*(1-X)/X for the remainder of the post tax revenue share. On that basis, using the Company's figures (excluding any extrinsic value premium for storage prices) I calculate the following valuations for PTG's share of Portland: Bidder's Revenue Share Value of PTG's Share (pence per share) 50% 580p 55% 480p 60% 395p 65% 320p 70% 260p 75% 200p 80% 150p These figures are only intended as a rough guide and will clearly vary depending upon your view of cost risks and future storage prices. They are also influenced to a lesser extent by your view on the discount rate (I have used a figure of 8%) since I have valued each parties share of the revenue using an NPV calculation. However, since it is a relative valuation, the criticism of NPVs made above is largely countered, and indeed if the valuation was done simply on the long term ratio of revenue for the two parties you would get a similar result. I hope that this table will prove to be a useful rough guide when evaluating the terms of the farm in bid, as and when it is agreed, since it will no doubt be couched in terms of capex covered for a given percentage of revenue share, rather than in pence per share terms. From the table it is evident that if you believe that bidders will want a 15% risked rate of return then the shares are not worth much more than say 350p including Larne. If the risked rate of return were 17.5% then you could drop that figure to 180p, which would appear to be Daniel Stewart's position. Investors in PTG can draw comfort, however, from takeout prices for other UK storage facilities, agreed in less volatile times, when gas supplies were considered more secure and the outlook for spot rate volatility was more benign. These suggest that buyers are prepared to invest at risked rates of well below 15%. |
Posted at 21/7/2008 16:11 by eacn scruff1, I don't know why DS issued a sell note, but they are not the first to have dismissed this stock on the basis of limited research.Many investors look at PTG and infer that it is grossly overvalued because: it will not generate any cash flow until 2011 at the earliest; it has yet to build the facility at Portland; and, it has still to obtain planning permission for the Portland pipeline. To many that suggests that the shares should be at a very significant discount to the NPV of the future projected cashflows. PTG is a bit like a junior mining stock which has reached the bankable feasibility stage. Such junior mining stocks exhibit many similar characteristics to PTG: cashflow many years in the future; mine yet to be built; and, permits yet to be granted. If DS are thinking of PTG like a junior miner then they will have noticed that PTG trades at a premium to junior miners. That premium is there because the market is assuming that: PTG will find a farm-in partner on favourable terms; PTG is a potential takeover target because it owns a very scarce commodity; and, the UK market for gas is becoming increasingly volatile and inflexible, suggesting that Portland will command a premium price for storage. If you don't believe or don't accept that these factors should have a bearing in the price then you will regard PTG as over-priced. Presumably this is DS's position. There is always a danger of getting ahead of oneself on valuation. Last year I invested in TMC, a junior miner with rights to a large nickel laterite deposit. I modelled the cashflow, based upon the company's projections and my views on the nickel price and came to the conclusion that the stock was worth over £5. So I bought a few at around £1.50 and then some more at around £2.50. The price peaked at £4.75 but within a month had tanked to around £1.60 at which point I sold at a loss. My mistake was to suppose that the value of future cashflows was a fair proxy for pricing the shares today. It generally isn't, since those cashflows aren't guaranteed and in a bear market cash is king. If PTG fail to close a farm-in deal or does so on less favourable terms that those already suggested by the company, or on terms that expose PTG to cash calls to cover development risks then the PTG share price may suffer a similar fate to that of TMC. In my view that is unlikley, but not impossible. |
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