Sunday, 29 March 2015

Singapore in mourning

Singapore today bade farewell to its founding father in a most impressive way.

Even the gods were crying, rain pouring down during Mr Lee's last trip through the city.

Rest in peace, Mr Lee.

Saturday, 28 March 2015

To Cliq or not to Cliq? (2)

Regarding my previous posting about this matter, it seems I wasn't the only person who had questions regarding Cliq's announcement.

Bursa queried the company with 8 highly relevant questions, which Cliq answered, some in a convincing way, some less so.

5. Justification in using the URALS oil prices forecast in the economic modelling, given that the price of oil has dropped substantially in the recent months

The oil price estimates included in the economic modelling was based on URALS oil price and the typical spread of Brent oil price to URALS oil price is about USD2 per barrel. In the middle of  January 2015, there has been a reduction in Brent oil price to around USD47 per barrel and the Brent oil price has since recovered to around USD56 to USD59 per barrel in March 2015.

As a result from the current low global oil prices, AGR believes that the demand for energy resources from the industries will increase, and hence, in the opinion of AGR, this is expected to further spur oil prices for the next 5 to 6 years. In addition, political instability in the Middle East may also result in a reduction in global oil supply and this is expected to further support the recovery of global oil prices.

The price of Brent Oil over the last six months:

It shows quite a difference, the current price (USD 56.41) is about 20% lower than the one used in the first announcement (USD 70.90). Since there are fixed expenses the gross margin must therefore be much lower.

AGR believes that the oil price will rise in the next 5 to 6 years. That might happen, but still, the base price is 20% lower, which should have quite a large impact on the near future projections, and thus the DCF valuation.

7. The financial information as required under Paragraph 19(d)(ii) and (iii) of Part A and Paragraph 1 of Part H, Appendix 10A of the Main Market Listing Requirements of Bursa Securities 

The financial information set out in Section 3 of the Announcement is for information purpose only and may not reflect the future financial performance of the SPV as the BTA entails the transfer of the Vendor’s assets (excluding liabilities, payables, cash and receivables) including Subsoil Use Contract, contractual obligations and certain existing employees to the SPV. As such, the SPV does not assume any prior liabilities arising from the Proposed Acquisition. In addition, the SPV has yet to be incorporated as at to date.

The disclosure of financial information of Karazhanbas Northern Field based on the financial statements of Phystech pursuant to Paragraph 19(d)(ii) and (iii) of Part A and Paragraph 1 of Part H, Appendix 10A of the Main Market Listing Requirements of Bursa Securities (i.e. profit before tax, profit after tax and minority interest, shareholders’ funds and total borrowings) may not be applicable in view that the Company is only acquiring the asset of Phystech.

That might be strictly speaking correct, but is still disappointing. The assets are generating financial numbers in the Profit & Loss and are valued in the Balance Sheet, and one would thus be interested in the full picture, not in some "selected financial information".

For instance:
  • How much tax is the company currently paying?
  • What is the current depreciation?
  • At what value are the assets in the books?
  • For how much money have they been acquired, and when?
  • What is the current paid-up capital of the company?
  • How much cash does it have?

Some of these will help in evaluating the assets to be acquired in the SPV, others are meant to form an opinion about the company that CLIQ will work together with (for instance its ability to keep its side of the bargain).

As mentioned before, a proper snapshot (past and current, balance sheet, profit & loss, description) of a company should not take more than a single page.

8. Financial information of Karazhanbas Northern Field based on the latest unaudited accounts for 2014

The financial information of Karazhanbas Northern Field based on the latest unaudited financial statements of Phystech for the FYE 31 December 2014 is not available at this juncture as the management of Phystech is in the midst of finalising the same.

That is disappointing, negotiations started in December 2014, that should give the company ample time to have the books ready by now.

Please note that The Edge wrote that "In 2013, Phystech recognised earnings before interest, taxation, depreciation and amortisation (Ebitda) of US$22.61 million.".

That is incorrect, it is unfortunately only RM 22.61.

Friday, 27 March 2015

Malaysia scores dismal on "open government"

The World Justice Project published its Open Government Index 2015. In the overall score, Malaysia ended on a dismal 88th place out of 102 countries.

Malaysia scored well on "Publicized Laws and Government Data", but badly on "Right to Information", "Civic Participation" and "Complaint Mechanisms".

This kind of research always has a subjective element in it, but overall (from own experience) I would agree with the above findings: excellent laws, but what is the use of it when enforcement and transparency are so lacking.

I guess most people have similar experiences with a complaint to a government agency that ended in a drawer somewhere and never came out of it. The reason why many people don't even bother anymore to file a complaint.

More information can be found here.

Wednesday, 25 March 2015

To Cliq or not to Cliq?

Cliq Energy has finally announced its qualifying acquisition, an investment in an oil and gas company based in Kazakhstan.

Regular readers know I am not "exactly" a fan of DCF valuations. Unfortunately, it has been used in this case:

The price of oil that is used in the DCF model is the prevailing price in December 2014.

However, the price of oil has since drastically fallen:

I certainly hope that a new DCF will be calculated, based on the recent price of oil. It will give a much lower outcome, is my estimate. Hopefully the details of the DCF will be published, although I doubt that.

Cliq had a long time to come up with its proposal, so we can expect lots of financial numbers.

Unfortunately, it is very disappointing:

Some comments:
  • Not a single balance sheet number of Phystech;
  • Some profit & loss numbers, however no PBT or PAT but the dreaded EBITDA (whenever they are presented, the earnings are much lower than the EBITDA number, we have to wait and see if that is also the case here);
  • EBITDA for 2013 only RM 23 Million, does not really look exciting;
  • Numbers are only up to December 2013 (15 months old), even tiny ACE-listed companies have already announced their (unaudited) December 2014 numbers a month ago, why can't Phystech give their unaudited numbers?

I have seen excellent formats provided by research houses where lots and lots of relevant data regarding a company is packed in one single page. Although the announcement of Cliq counts 26 full pages, relevant numbers are very scarce, lots of important (financial) information is left out.

We must hope that the official brochure to Cliq's shareholders will be of a much higher quality.