I think part of the reason for the bad sentiment is that the vast majority of investors are not forensic accounts and, to be honest, I’m pretty sure most of them don’t want to know about the details they just care about the share price. The reality is that despite all these amazing deals the price is still massively down from the £20+ equivalent it was a while back when a lot of people bought due to the now vanished dividend income. So people sitting on significant capital losses and reduced dividend tend to not be happy when the share price tanks approx 15%.
Your analysis looks good and, assuming there are no more deals for a bit, maybe revenue/profit will increase as you outline and even debt may come down. However, it doesn’t really matter unless that pushes up the share price as that’s what investors care about.
What might help matters is if the company took an interest in its share holders and provided a bit more info in an easy to digest manner and outline how their strategy will grow the share price. Because the American market is only interested in growth and if you don’t provide it you eventually get dropped from portfolios.
"A lot of people bought at £20" - certainly some did and if they didn't or couldn't average down then I agree they will not be happy. Other bought for the higher dividend so again will not be happy....
But in investing all you can do is act in the present, to decide about the future. Paper losses of the past are in the past.
If those people bought at IPO since then its returned $885m (£700m) which is 1.25X today's market cap (without any compounding) yet has grown production 80X since 2017 once Maverick is factored in. So don't think it has much to worry about around telling a growth story.
But I do agree about their accounts are not always being easy to digest.... but some of that is down to accountancy rules - not DEC's choice.
I would comment that for the placing itself, strictly speaking, I only consider points 1 and 8 as positives. The other points you make are valid for DEC's situation in general, of course - I agree, but the placing itself contributes savings on interest payments and could be considered as a kind of arbitrage trading gain earned by an opportunistic management in my mind.
2/ Whether buying DEC at £11.50 in 2025 is more or less valid compared with 2024 - particularly in response to the secondary placing (or indeed selling - and that's why all Points 1-8 are valid to consider in my opinion).
Whilst the Maverick deal itself doesn't create a higher natural gas price DEC stand to be a beneficiary, and more so with the additional production from this deal.
Whereas if you'd sold before or after this placing you'd miss out.
OB might I suggest you stick to your excellent analysis of the pros and cons of DEC and not make reference to suffering long term shareholders as harrumphas, whingers etc etc who are currently still nursing a significant paper loss after supporting DEC’s expansion from the early days. Sadly this approach exemplifies what is perceived to be the attitude of Hutson to PI’s that he doesn’t give a 💩 about them , the SP and shareholder value . I give you more credit than this as I have followed you for a long time. Financial loss hurts deeply even on paper hoping to recoup those losses trusting that Hutson will deliver shareholder value. Not everyone can reduce their losses by averaging down and jumping ship elsewhere doesn’t g’tee recovered losses. Please just bear a thought why there is such long term upset and distrust of Hutson , the BOD and the money men feeding of him and his deals at the expense of a collapsing SP
Hi John, I do sympathise that financial loss hurts - we've all felt it.
I don't believe any CEO "cares" about a shareholder but I do know some are motivated by delivering returns and that Hutson is one - just look at his compensation and bonus metrics - they are shareholder focused 80% - and ESG 20%.
For what it's worth "the numbers" look good based on my analysis but the share price does its own dance. Sometimes the snakes and ladders of doing deals is that there's a step back to take two steps forward. That what the maverick deal has turned out to be. That's life. I don't think it's fair to put that at Hutson's door - blame the faceless financeer that presumably have changed the goal posts on him, because I simply do not believe that this 8.5m secondary share sale was planned and instead has been forced on DEC at the 11th hour by a third party. But that's just my own personal view and not a proven fact. Just you and I chatting.
But I'll try and rein in my references - which probably is ironically an expression of frustration at the frustrated!
OB, if looking at the deal from an sp perspective from last year where it was below £9 or even if buying in today then all sounds very positive. If like me where I built my stake above £20 equivalent, based on a yield of 14%. After the divi cut now just looking to get back as much capital as possible, I can fully understand those shareholders moaning yet again watching the sp take a kicking following another “great” deal by Rusty. It is funny that we rarely (can’t remember one) get a bump in sp following one of Rusty’s acquisitions.
I try not to focus on short term movements in sp too much and rely on business fundamentals to drive sp over time but it does feel like everytime the sp gets some momentum one of Rusty’s great deals or strategy changes (divi cut for one) comes a long and pulls the rug out from under it. We will now have to wait for who knows how long (probably at least 6 months to a year) for the sp to recover.
I recognise that the management do a great job of squeezing margin out of their well stock and turning into cash but it appears to me that he also cannot wait to get any free cash or extra debt spent on the next deal and then the next deal and I wonder if we will ever see the benefit of the long tail of production creating debt free cash to be returned to shareholders at a higher value that the so we purchased at.
Hi Jamie, I suppose what you need to decide is whether to be on that growth story, or whether to swap to an income stock instead. As you bought DEC for an income you're now partly in a different story. (Depends whether an 8% yield at current prices, assuming a SIPP, is adequate as an income?)
Growth relies on investment and acquisition, so it's no surprise that deals flow and debt grows, and cash flow flows into more deals and growth and not just into deleverage and a growing income.
Given the current and future opportunity in US natural gas and what I see as the strong fundamentals and core competencies at DEC it feels the right thing for DEC to have done but it might not suit all its investors. Natural gas is probably a 10-20 year story perhaps longer, until some future technology like Fusion renders it utterly irrelevant. So when will DEC stop growing and create "debt free cash" instead as you put it? Not soon.
this share is frustrating no sooner do we get some momentum than management seem determined to drive it back down....long term holder but wish i wasn't
The recent Tennyson Research Note highlighted that once the Maverick deal closes over 70% of shares will be held in the US resulting in the US becoming the Primary listing.
Another thought: while the PV-10 per share drops die to the placement, I believe that one could make an argument to adjust it upwards with the known annual interest savings - while it is of course not a resource in the accounting sense, we buy a stream of savings of more than $1 per share each year - probably I explain it confusingly, but, I think this should lift the 'adjusted' PV per share in a DCF calculation (I am bad at doing DCFs in my head) ...
True and also that the PV-10 is based on the 10 year NY strip and we both know that the current PV-10 is based on the 2023 annual report10-year which is now vastly undercooked relative to today's higher natural gas prices. In 2023 compared with 2022 it was adjusted downwards by around $2bn from ~$5.8bn to ~$3.8bn
I think part of the reason for the bad sentiment is that the vast majority of investors are not forensic accounts and, to be honest, I’m pretty sure most of them don’t want to know about the details they just care about the share price. The reality is that despite all these amazing deals the price is still massively down from the £20+ equivalent it was a while back when a lot of people bought due to the now vanished dividend income. So people sitting on significant capital losses and reduced dividend tend to not be happy when the share price tanks approx 15%.
Your analysis looks good and, assuming there are no more deals for a bit, maybe revenue/profit will increase as you outline and even debt may come down. However, it doesn’t really matter unless that pushes up the share price as that’s what investors care about.
What might help matters is if the company took an interest in its share holders and provided a bit more info in an easy to digest manner and outline how their strategy will grow the share price. Because the American market is only interested in growth and if you don’t provide it you eventually get dropped from portfolios.
Hi Ian,
"A lot of people bought at £20" - certainly some did and if they didn't or couldn't average down then I agree they will not be happy. Other bought for the higher dividend so again will not be happy....
But in investing all you can do is act in the present, to decide about the future. Paper losses of the past are in the past.
If those people bought at IPO since then its returned $885m (£700m) which is 1.25X today's market cap (without any compounding) yet has grown production 80X since 2017 once Maverick is factored in. So don't think it has much to worry about around telling a growth story.
But I do agree about their accounts are not always being easy to digest.... but some of that is down to accountancy rules - not DEC's choice.
OB
Hi OB,
I would comment that for the placing itself, strictly speaking, I only consider points 1 and 8 as positives. The other points you make are valid for DEC's situation in general, of course - I agree, but the placing itself contributes savings on interest payments and could be considered as a kind of arbitrage trading gain earned by an opportunistic management in my mind.
Thanks for the analysis, as usual, of course.
Hi Mr S,
You're right that there's two aspects here:
1/ Whether the dilution itself is "worth it" and
2/ Whether buying DEC at £11.50 in 2025 is more or less valid compared with 2024 - particularly in response to the secondary placing (or indeed selling - and that's why all Points 1-8 are valid to consider in my opinion).
Whilst the Maverick deal itself doesn't create a higher natural gas price DEC stand to be a beneficiary, and more so with the additional production from this deal.
Whereas if you'd sold before or after this placing you'd miss out.
OB
OB might I suggest you stick to your excellent analysis of the pros and cons of DEC and not make reference to suffering long term shareholders as harrumphas, whingers etc etc who are currently still nursing a significant paper loss after supporting DEC’s expansion from the early days. Sadly this approach exemplifies what is perceived to be the attitude of Hutson to PI’s that he doesn’t give a 💩 about them , the SP and shareholder value . I give you more credit than this as I have followed you for a long time. Financial loss hurts deeply even on paper hoping to recoup those losses trusting that Hutson will deliver shareholder value. Not everyone can reduce their losses by averaging down and jumping ship elsewhere doesn’t g’tee recovered losses. Please just bear a thought why there is such long term upset and distrust of Hutson , the BOD and the money men feeding of him and his deals at the expense of a collapsing SP
Hi John, I do sympathise that financial loss hurts - we've all felt it.
I don't believe any CEO "cares" about a shareholder but I do know some are motivated by delivering returns and that Hutson is one - just look at his compensation and bonus metrics - they are shareholder focused 80% - and ESG 20%.
For what it's worth "the numbers" look good based on my analysis but the share price does its own dance. Sometimes the snakes and ladders of doing deals is that there's a step back to take two steps forward. That what the maverick deal has turned out to be. That's life. I don't think it's fair to put that at Hutson's door - blame the faceless financeer that presumably have changed the goal posts on him, because I simply do not believe that this 8.5m secondary share sale was planned and instead has been forced on DEC at the 11th hour by a third party. But that's just my own personal view and not a proven fact. Just you and I chatting.
But I'll try and rein in my references - which probably is ironically an expression of frustration at the frustrated!
OB
OB, if looking at the deal from an sp perspective from last year where it was below £9 or even if buying in today then all sounds very positive. If like me where I built my stake above £20 equivalent, based on a yield of 14%. After the divi cut now just looking to get back as much capital as possible, I can fully understand those shareholders moaning yet again watching the sp take a kicking following another “great” deal by Rusty. It is funny that we rarely (can’t remember one) get a bump in sp following one of Rusty’s acquisitions.
I try not to focus on short term movements in sp too much and rely on business fundamentals to drive sp over time but it does feel like everytime the sp gets some momentum one of Rusty’s great deals or strategy changes (divi cut for one) comes a long and pulls the rug out from under it. We will now have to wait for who knows how long (probably at least 6 months to a year) for the sp to recover.
I recognise that the management do a great job of squeezing margin out of their well stock and turning into cash but it appears to me that he also cannot wait to get any free cash or extra debt spent on the next deal and then the next deal and I wonder if we will ever see the benefit of the long tail of production creating debt free cash to be returned to shareholders at a higher value that the so we purchased at.
Hi Jamie, I suppose what you need to decide is whether to be on that growth story, or whether to swap to an income stock instead. As you bought DEC for an income you're now partly in a different story. (Depends whether an 8% yield at current prices, assuming a SIPP, is adequate as an income?)
Growth relies on investment and acquisition, so it's no surprise that deals flow and debt grows, and cash flow flows into more deals and growth and not just into deleverage and a growing income.
Given the current and future opportunity in US natural gas and what I see as the strong fundamentals and core competencies at DEC it feels the right thing for DEC to have done but it might not suit all its investors. Natural gas is probably a 10-20 year story perhaps longer, until some future technology like Fusion renders it utterly irrelevant. So when will DEC stop growing and create "debt free cash" instead as you put it? Not soon.
OB
this share is frustrating no sooner do we get some momentum than management seem determined to drive it back down....long term holder but wish i wasn't
Do the additional shares just issued accelerate a NYSE primary listing?
Hi Dallas, Hadn't considered that - but yes they do.
The recent Tennyson Research Note highlighted that once the Maverick deal closes over 70% of shares will be held in the US resulting in the US becoming the Primary listing.
Another thought: while the PV-10 per share drops die to the placement, I believe that one could make an argument to adjust it upwards with the known annual interest savings - while it is of course not a resource in the accounting sense, we buy a stream of savings of more than $1 per share each year - probably I explain it confusingly, but, I think this should lift the 'adjusted' PV per share in a DCF calculation (I am bad at doing DCFs in my head) ...
True and also that the PV-10 is based on the 10 year NY strip and we both know that the current PV-10 is based on the 2023 annual report10-year which is now vastly undercooked relative to today's higher natural gas prices. In 2023 compared with 2022 it was adjusted downwards by around $2bn from ~$5.8bn to ~$3.8bn
OB
Sanity prevails, thank you !!