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The trouble with buybacks and GKP is that they have a raw history….
During the last buybacks in 2019, which were to Treasury, the motives for Jaap Huijskes were very different than this time.
Jaap Huijskes (Chairman at the time) wanted to create a pool of shares that he could re-invest in incentivising his employees as required.
Trouble was, he wasn’t honest about it to us humble shareholders.
And as a consequence, investors (rightly) scratched their heads and legitimately asked what the point of the buyback was. He deployed the ‘accretive value’ and the ‘defence to hostile attack’ arguments which was literally unbelievable. There was no accretive value in buying back to Treasury. Nor was there any evidence of an impending hostile bid for GKP. In fact, it turns out the shares were bought back to Treasury with the intention of rewarding loyalty (and maybe) performance for employees.
In any case nobody believed him and the share price never responded in any significant way.
But the consequences, though laboured, were dramatic. Neither he nor Jon Ferrier ever received the 80% shareholder confidence vote at any AGM thereafter. In 2020 he had no choice but to cancel those $50m shares sat in Treasury and write them off the Balance sheet anyway. He could have bought them back for cancellation in the first place as he should have done. The share price would almost certainly have moved North, given timings and the financial position of the Company at that time. But he didn’t. The result was a substantial loss to the business for no perceivable benefit whatsoever. He then sacrificed his CEO who fell on his sword and announced his retirement in 2020 (though he took his bag of unearned swag worth $ms with him!).
And it’s not good enough to state that buybacks are just a form of capital returns to shareholders. Everything depends on motivation. I note that Juijskes chose buybacks rather than dividends…
Apologies for a summary of more recent GKP history, but context is important so as best to understand more about the current buyback and its potential consequences.
With the arrival of JH in Jan 2021, there was a change of mood. Self-serving motives were crushed and replaced with a new vision, one where the shareholders best interests were primary in management terms…as it should be. Huijskes has now gone (no doubt with his own bag of swag) but the Board clearly have a new outlook. One that at least attempts to act on behalf of the owners’ best interests. Yes the Board will wish to recoup their lost earnings over the last period, but:-
1) They’ve shut down the cost base;
2) They are replacing the volumes, albeit at discounted prices;
3) They’ve joined in the shareholder survival enterprise by slicing their own earnings;
4) There’s a new model in Town; one which has its own real value going forward.
Hence the new buyback initiative, this time for CANCELLATION. And that’s the key.
TBC…
Sorry, I got carried away in my own argument…
The key issues are that:-
f) GKP are finally going on the front foot with the Market, challenging their GKP valuations and asking real questions about their judgment;
g) They have demonstrated unequivocally that they mean business;
h) They have a credible way forward which allows them to pursue their chosen goals because it’s all self-funded;
i) The ITP will almost certainlyre-open, albeit under adjusted terms; It can’t not (even though that’s a double negative!);
j) Obviously the terms of re-engagement will be difficult and protracted so the Markets will reserve judgment until these issues are resolved. Point is we are currently undervalued and the Board have taken a positive/aggressive position.
It’s the sublime beauty of being debt free.
What I don't like about the buybacks is the potential reduction in operational flexibility resulting from reduced capital buffer.
All the "self-financing" scenarios rely on a good PoO, whether on international markets or locally, and until the future SH development plans are clear and agreed, and until the revised contract revenue streams are unambiguously defined, it would be prudent to stop such schemes and hoard the cash.
A period of $60/bbl crude (international price, local might then even sink to ca $20/bbl?), concurrent with starting a intensive Capex program, would cut the legs off the company.
‘Buybacks are simply a distribution of cash. Nothing more. Nothing less.’
PUTUP regards buybacks as just a technical mechanism for returning capital to shareholders…nothing more, nothing less.
And he’s wrong.
If GKP think the Market is seriously undervaluing the Company then they should invest in it on our behalf. The CANCELLATION effect is to concentrate minds.
A dwindling share base in a forward looking business with a two tier strategic approach will do that for the investment community.
So the Board’s Market pitch is simply this, put in my terms:-
“We believe in GKP and we’re going to show it via buybacks for cancellation. Also we’re going to carry on doing it using our new found FCF which is sustainable with or without the structures on which the GKP business original model was built.
Now, in this new regime, cancellation is King. The choice is whether, as an investment community, you want to play or pass. Because from now on, the Common Share base will shrink. And we will continue to press our point by restricting your ability to buy at current prices. We are making significant returns in the current climate that we find ourselves in.
What do you want to do? Because this is our new trajectory”.
I also find it quite impressive that Peel Hunt are managing the buyback so as not to pay a premium on the market price where possible…as a consequence there will some volitivity in the sp until the buyback is completed.
Put simply this what serious management looks like.
Posters like truthsayer have neither the experience nor the intelligence to understand this.
Btw, intelligent posts Nobull.
"starting a intensive Capex program, would cut the legs off the company"
Not if the $151 m of arrears paid. If no payment, then no "intensive Capex program". The arrears more than 15x the ongoing buyback program of a pittiful $10m which is entirely funded by a month or two of FCF which is also ongoing!
You’re really hung up about the delinquent debt, aren’t you?
I get that. So am I.
But I reckon you need to get over that in the context of GKP’s future positioning.
And you’re not addressing the more pressing issue…how does GKP navigate its future?
And sure as sh*t it mustn’t rest on the recovery of $151m delinquent debt because that is now in the ether and may or may not be recovered, either in whole or in part.
Certainly it definitely cannot be a part of the recovery plan because the recovery of that money must not be relied upon in any future strategic planning. Who knows how that will pan out? Better to treat it as a bonus that should be pursued with vigour.
There’s a new model in Town which doesn’t rely on the KRG honouring their obligations.
Because there’s a serious business to run and JH has to play what’s in front of him.
He mustn’t be distracted by delinquent debt although he certainly has a duty to drill down on it. These issues are not mutually antagonistic. But he needs to focus on the next phase in GKP’s development.
And as a self-funding, debt free GKP, he’s got the capability to press on because he’s got a two-tier strategic approach.
Once again, it’s the benefit of being a debt free business thanks to previous shareholder sacrifices…
I know you’re a LTH, so these issues are difficult given what you’ve been through.
Nevertheless GKP’s position is clear and I believe we should back it.
SC.
"You’re really hung up about the delinquent debt, aren’t you?"
No I am not as I do realise it may not be recovered, just like the $x00 m that were never recovered during the ISIS years, which caused the 2016 restructuring. All I am saying that substantial further investment should be conditioned on the recovery of the past arrears. The company must stop unnecessarily hoarding cash in anticipation, or even crazier by going into debt again to fund such investments.
Best Regards ValueS
I'm not going to debate this with you V, because I've not had your experience and haven't suffered your pain.
I guess what I'm asking of you is that you try and look forward rather than back.
History can only teach us so much. And management change has clearly benefited GKP.
Tough call for you I understand.
Don't know what else to say really...apart from that I have absolutely no intention to offend.
I just see it as I see it.
Redirect the funds wasted in the buybacks fiasco into taking the rulers to the ICC for recovery of the growing mountain of debts we are legally entitled to.
Accountability as to where the funds which should have paid our debts ended up - will come out in the wash.
Corruption may be behind this farce - who knows !?