Why can't this hold a rise.
Last 2 updates excellent, rises for a day or 2 then slumps back down. Infuriating |
In 2018 long term debt went up from $402mn to $410mn. The interest bill was $31.3mn. At the half year just gone the interest expense was $12.3mn, $24.6mn annualised, so not that much lower. Revenue has significantly increased whilst cost of sales is broadly similar. So rates, utilisation and effective operations are doing the job. We have 3 or more interest rate decreasing events this year (probably): a 25bps cut in September, the refinance, and the leverage ratio going below 2. It's not impossible the Fed does another 25bp cut. That's $5mn odd off the interest expense (I've not calculated exactly) though reducing every month / week! as the outstanding principal is repaid. The saving is also small beer compared with the cash being generated. |
The interest thing to look at is how the enterprise value of the company basically is unchanged over the past 3 years, from 3 years ago the shares were at 5p and the ev around 440m usd which is the same as today, basically all the debt pay down has converted into increased market cap, from this we can predict the shares should continue to increase by about 6p per year at an ever rising rate ... |
They're throwing off cash..
September 4th:
..net bank debt to US$ 238.5 million.. Subsequent to the period end, the Group made further prepayments towards the bank borrowings of US$ 11.0 million.
(i.e. net debt USD 227.5 million)
September 12th:
Our net debt today stands at USD 224 million. |
The repayment of debt has done two main things. 1) increased the proportion of the enterprise value owned by the shareholders rather than debt holders - hence the huge share price appreciation over the past 18 months... 2) materially reduced the discount rate applied to through cycle earnings. Even in the event of a downturn, GMS does not need to cover the same interest costs that it did before. From memory, it remained a cash generative business at the operating level even in the downturn - it was the scale of interest costs that killed it. It's a fair bet now that with one or two more highly cash generative years ahead, the debt will be largely gone, and any consequent downturn can be faced with confidence that the business will survive. That has big implications for the quality of the earnings stream going forward, and what investors should be willing to pay for it. GLA |
 I have been adding regularly in the last few months actually, some with a 15 handle but in the 18s in June. This is as income, and capital from takeovers roll in. I am pretty convinced the selling has nothing to do with the company or its performance.
I did wonder if some people were looking at oil price direction, but that would be a pretty naive view of how the industry works. The gulf states, which still have the cheapest production, are just going to keep producing and will ignore the oil price because trying to manage the price doesn't work. All it does is provide finance for more expensive fields to come on line. US shale has to bring production on line constantly, for example, and that is funded by forward selling. Producers in general are always heavily net short, which is the purpose of the futures market after all.
Part of the thesis is that demand for our services will be resilient even when oil demand starts to permanently decline. China is probably going into a lower energy intensive phase, but Indian usage is increasing. We provide the most cost effective services, with modern vessels, in the cheapest producing area. This latest contract, at higher rates, demonstrates that.
I do wonder about the capital gains tax selling, but that must be an edge case. For example it only applies to UK private investors. I still think there will be short selling from outstanding warrants, and they know that their window of opportunity ends about 7 months earlier than they may have thought. There is also potentially short selling from some Seafox investors that do want some cash. That said I would have thought Seafox might be a source of borrow, but perhaps that is the other large holder. These things solves themselves over a relatively short window and if not the company can sensibly institute buy backs after the refi and once gearing goes below 2. |
Looks like the new contract is on excellent day rates from the stated backlogs for year end and 11th march contracts, all going very well and 3 years of high cashflow locked in ... |
Absolutely insane how cheap this is.
Upgraded guidance, new long term contract and debt down by $12.5 million since the end of June. I had modelled debt reducing by $5 million a month, looks like slightly more than that. |
Good news this AM and I think good company management to get a positive RNS out given weakness. "As for our guidance for 2025, we are in the process of revisiting it and shall share it with you in the next couple of months". This was the section which most excited me. Am meeting Mansour and Alex in a couple weeks time so will probe on this and see what their thoughts are..... |
Dire support |
https://podcasts.apple.com/gb/podcast/small-caps-podcast-with-paul-scott/id1642339156?i=1000668723711Paul Scott holds Stock in GMS ! Gives it a green light |
50% only takes us back to where the share price was a few months ago. It should be trading at least at NAV, which in a year will be 34p or so (haven't redone my calculations since the latest numbers). |
Decent first half and pleased with seafox move. I continue to see c40-50% upside from these share price numbers over next 12 months imo |
I think Seafox is playing the long game with the remaining 10% (which I see as a positive). So much of the rest of the market is focused on the very short term, irrespective of the underlying value. |
CousinIT - The investor in Seafox necessarily have a long time horizon because they are directly invested in a small private company. I think it is an excellent mechanism and very obviously one agreeable to those investors. It is considerably better than Seafox working them out in the market. Of course some will make use of public liquidity but that is literally how a market works. These new direct shareholders now have even more of an incentive to spread the word.
Of course we can't divorce any share price action in the last month from the wider market and fears around the US economy. |
So much store placed in momentum these days to avoid sitting in cheap assets where the price isn't going anywhere.
Pre May there was positive momentum in spades; the Seafox placing killed that and the opposite trend has emerged. That is probably keeping a number of potential buyers on the sidelines. |
What is bizarre is that between May and now the only genuinely new information is the refinancing to complete hopefully at the start of November, which is just a positive. Even a September rate cut was consensus at the time.
I do understand warrant selling / shorting - that is a pure arbitrage. Warrants were, and are generally, a necessary part of the distress financing so we should expect those profits to be taken. For a conventional investor though growth plus a discount to NAV is pretty compelling. |
Equity prices so influenced by supply and demand.
Statement today suggests more supply as Seafox underlying holders may feed the market with stock once they receive it in specie.
This could set up a situation where, with the refinancing, some share buybacks could help mop that up at prices well below book value. It almost feels orchestrated by Seafox with their remaining 10% in mind. |
Yes - the tailwinds are valuation, operations and debt-dynamics.
The headwinds are unsophisticated (?) investors dumping stock without knowing/caring about the discount to fair value at which they do so.
Their loss is the gain of anyone buying at these levels. |
With interest rates about to go down interest costs will also be declining and de-leveraging will accelerate further. I bought more yesterday and I am buying more today. |
$40m paid off the debt in 8 months, with the pace seemingly quickening - which makes sense as cashflow rises and interest expense falls. |
13th May they stated:
net debt further decreased during the first quarter of the year to USD 256.4 million as of 31 March 2024, with a net leverage ratio of 2.96 times, in-line with its strategy.Net debt was USD 267.3 million at year end on 31 December 2023.
The Company is also pleased to report that it made an additional prepayment of USD 5.0 million towards its debt repayments in the last week, reducing net debt to USD 250.4 million.
August 1st they stated:
"As we have made an early settlement towards our debt last week, our current net debt is USD 234 million, down from USD 267.3 million as of December 31st, 2023.
September 4th they stated:
..as of 30 June 2024..a reduction in net bank debt to US$ 238.5 million.
Subsequent to the period end, the Group made further prepayments towards the bank borrowings of US$ 11.0 million. |
A lot to take in. Cash-flow statement is the key with the company throwing off $40 million plus in cash pre-interest payments. As the debt falls so this element reduces. Hard to find a company in such a sweet spot, throwing off so much cash and being valued so cheaply.
Seafood announcement is interesting. Divesting 60% of their shares to their shareholders with a commitment to retain the rest.
The company has been clear that there is a lot more institutional interest in the company now that the debt is manageable.
Hope they prioritise dividend / buybacks before expanding the fleet, though it is encouraging that they are sufficiently confident in the market outlook to consider investing in additional vessels. |
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