Diversified Energy Share Discussion Threads

[scrwal] 26/5/2022 13:56

Woodhawk I'm not a hedging expect nor am I a novice either.

I have been fortunate to buy when the share has been hit by bad press and have an average of 100.8p but my gain is over a two year time frame.

[simplemilltownboy] 26/5/2022 13:09

This was posted on another board, well worth a watch if you have the time. https://www.youtube.com/watch?v=6bfddBRDxXw

[woodhawk] 26/5/2022 13:07

I'm already 10% up through 'capital growth', scrwal (and I've only been investing here a few weeks) though I admit my carrot is the fantastic divi.

BTW are you an expert in hedging techniques?

[scrwal] 26/5/2022 12:58

The price movement today is a nice bonus as the divi is basically free - I wonder if it would have risen by so much if it wasn't xd today.

The company is able to rehedge at higher rates above the $3 figure that Rusty uses - guess that needs a small uplift re increased operating costs BUT what do they think is going to happen price wise in 3 years time. Presumably the expectations are for a retreat in prices to below hedged pricing but Alemans 2024 chart shows the price just breaking through the $4 level, I guess later than June 2024 the price drops to £3.50-3.75 maybe so DECs expectations must be for a 50% reduction in market price by then to justify heavy rehedging per their plan. IF they don't believe prices will drop by that much then they possibly shouldn't be hedging as much as they may do.

I don't see a rerating unless the hedged prices begin to exceed market prices in the future. This is a cash cow with stable inflows because of the hedging and will always be treated as an income share with the potential for modest capital growth. This will all change 30 years down the line when there is terminal unreplaceable production decline but I shall be pushing up daisies well before then.

[lomand] 26/5/2022 12:44

Plus the percentage of production requiring hedging to cover dividends and debt service falls as gas prices rise.

[aleman] 26/5/2022 09:45

Spot has gone from $1.80 to $9.00 in 2 years. Just pointing out for those not aware. The company sells about 10% at something like spot prices. However, the natural response would be to go all out (extra manpower, overtime, whatever) to maximise production with prices so high. They are probably tweaking up pump rates at the expense of more breakdowns and leaks - but they can then just throw more worker hours at fixing them. I suspect the amount being sold at close to spot rates will be up this year. I'm just speculating, though.

[woodhawk] 26/5/2022 09:26

Well reasoned, Aleman! Good to see most of the ex-divi drop already erased.

[aleman] 26/5/2022 09:22

Average hedge price is up about 65-70% on 12 months ago and hitting new highs almost daily. The share price is the same. It think it is starting to rerate, though. It looks like a US listing is getting closer and higher prices extend well life and spread plugging costs - that's without the benefits from a successful geothermal trial in the industry that is likely to increase profit margins and further extend well life for some suitable larger wells.

[asp5] 26/5/2022 09:14

I would just add that the hedges are what enables DEC to repay debt (~$130M this year)and pay a dividend with a high level of assurance not just now but for the ensuing years. It is this risk management setup that allows a consortia of banks to finance its growth. Without this in place we would be back to the dilutive share issuances based growth model.

Fully agree that as hedges roll-off newer hedges at higher levels will allow a rolling rerating of the share price The timing is always a challenge - but we should see the average hedge price increase from current levels going forward (assuming prices stay elevated which I think is going to be the case for some years).

Given the turbulence in the markets, I think DEC offers a great mix of growth & income for investors.

[simplemilltownboy] 26/5/2022 08:39

Due to the hedges it appears that the share price rise is delayed as the revenue uplift is delayed. When the new higher hedges are in place the share price will respond accordingly. This is my biggest and most boring share, however I like the predictability of the dividend and the knowledge of the continuing shareholder focus. For the patient person I believe there are rich rewards here. GLA.

[woodhawk] 26/5/2022 08:23

Agreed, SimplyMillTownBoy. I'm primarily here for the superb quarterly divi, but any share price uplift will be more than welcome.

[simplemilltownboy] 26/5/2022 08:18

DEC gone ex-divi today, US gas ticked over 9 dollars, all bodes well for the future. The hedges will continue to achieve a higher price upon their expiration. Gas is forecast to stay higher for longer. I personally think this is a really safe share which will capitalise of higher gas prices over the next year or so and this will lead to a higher share price I've been in and out of this share for the 3 years and believe the shares have never been so undervalued and believe they will rerate later this year as they continue to lock in higher hedges. GLA

[scrwal] 25/5/2022 18:02

Woodhawk

Nowhere have I stated this share doesn't suit me. It is 12% of the market value of my ISA and I hold because of the dividend. I have always stated that the company is well run and whilst some do not like my posts they are not assassinations of the company but gripes about the inflexibility of the hedging plan which misses out big time in times like now.

Having a look at the time line my post was actually a response to lab305 earlier on in the day - I wasn't referring to private investors but another company in my post which on reading it again seems clear enough to me.

[woodhawk] 25/5/2022 15:46

"The dividend looks good only because the share price is so poor"

Which is why I bought in only recently. Doh!!!!

[lab305] 25/5/2022 15:26

Woodhawk we don't all have to think that the company can do no wrong to be investors here. I myself was invested heavily since 2017 and hedging was never mentioned in the first two years. We made a real profit then and the so went quickly from 65p to 1.32p. I believe that the dividend even accumulated since the beginning would look small against the share price rise that would have taken place without the very aggressive hedging policy. The dividend looks good only because the share price is so poor .

[woodhawk] 25/5/2022 13:31

One of the many answers to your question, scrwal, is those that seek a large and relatively secure quarterly dividend. Like me.

As clearly this doesn't suit you, why are you bothering to post here?

[scrwal] 25/5/2022 12:35

DEC is undervalued but I think this is a result of the hedging. Who would buy it when the next two years production is hedged at prices well below market - maybe another company using a similar model to DEC if it exists. DEC does have valuable assets but a buyer cannot get close to their unhedged potential for 2 years which is a long wait.

The company has to make acquisitions to offset the declining production - First Berlin use a rate of 8.5%.

[bluemango] 25/5/2022 12:33

Spangle93

Thank you very much indeed for your time, much appreciated.

Already being a holder here (and not changing that for the foreseeable!) the main downsides I could see in holding both were the lack of diversification in holding similar stocks, and the prospect of Trudeau getting his grubby hands on a possible windfall tax. But tempted to take that risk.

[aleman] 25/5/2022 12:32

All futures contracts up to about 30 months are nudging up slightly to further new highs today.

[asp5] 25/5/2022 11:55

Cenkos are predicting FCF to grow ~32% in 22 to $327M (from $248,5M). This does not factor in the acquisitions that are planned which should increase this further.

DEC is in deep value territory in my opinion and I would not be surprised with further target share price increases. A lot of market factors are also supporting an increase in the DEC share price.

It is not possible to time any correction upward in share price however over the last 6 months the share price is up ~20%. Add in the dividend of ~11% and returns compare very favourably. Huge amount of upside potential from here in my opinion.

The beauty is DEC's model allows this growth to be maintained systematically for many years to come. So real multi bagger potential if they continue to execute as they are doing.

[lab305] 25/5/2022 10:13

Copied from the LSE thread...


"Asian and European natural gas prices stand at $35 per mmbtu, versus $8.20 per mmbtu here in the United States. Given the underlying fundamentals that have now developed in US gas markets, we believe prices are about to surge and converge with international prices within the next six months."

"The world has enjoyed a decade of cheap, abundant energy and nowhere has that been truer than in US natural gas. We consume nearly as much energy via natural gas as we do via crude oil, although it is usually an afterthought. The rest of the world is in the midst of an acute gas shortage that has grabbed everyone’s attention. We believe the same is about to happen in the US -- much faster than anyone realizes."

[woodhawk] 25/5/2022 10:07

Thanks for that sf5!

[sf5] 25/5/2022 09:49

There's a bit of English in this German analyst extract. Target share price upped from 150p to 160p it seems

[spangle93] 25/5/2022 09:38

Fair point, lab305. I nearly added that I3E has significantly re-rated over the past year, whereas DEC still awaits a step change in share price.

[lab305] 25/5/2022 09:13

Thank you Spangle for that comprehensive analysis. I'll stick here as I believe the share price does not reflect the company's true value. We are not even at the price we were four years ago. Contrary to what others believe I think this must be ripe for a takeover bid . I don't think that gas prices are ever going back to the prices we are selling it for and the potential profit from these assets is enormous.