Valuation, sentiment, and SP direction

Wednesday, Jun 17 2009 by

Detailed discussion of Soco's assets should take place on other threads, but this thread is to discuss the latest valuations both by ourselves and analysts, sentiment (ie will the shares go nowhere because there's not much upcoming news) and likely moves in the share price in the next six months.  How should the shares be valued?  How reasonable is it that any drilling without a firm commitment further than several months away is ignored by the market?

I haven't seen many recent analysts' reports on Soco, but I have one from Cazenove with a core NAV of 1370p and no doubt considerable explo NAV on top of that.  I imagine that's approximately concensus, but maybe with crude rising again these concensus NAV figures will start to rise.  Has anyone any other recent broker estimates?

My view, as stated elsewhere, remains that in the absence of much to get the market excited the shares will wander aimlessly for the rest of 2009.  I've previously guessed that if crude were $65 at Christmas 09, then Soco's SP would be somewhere near £13 then, and I'm still very happy with that guess.  What does anyone else think?

Of course unexpected bids and other events may overtake this, but these sort of events may happen to any company, and perhaps Soco (where management seem unlikely to accept bids since they believe there is considerable value not recognised by the market) is one of the less likely companies to be affected by the unexpected.  The key new news for Soco might be (a) a bid (IMO unlikely), (b) some sort of presentation by management of the drilling data they claim to have that demonstrates a significant strike has been made at E, currently ignored by the mkt, or (c) possibly hitting oil off the Congo.


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SOCO International plc is an international oil and gas exploration and production company. The Company has oil and gas interests in Vietnam, which includes Block 9-2 and Block 16-1; Republic of Congo (Brazzaville), which includes Marine XI Block and Marine XIV Block, the Democratic Republic of Congo (Kinshasa), consists of Nganzi block and Block V and Angola, which include Cabinda Onshore North Block. The Company's operations are located in South East Asia and Africa. It holds its interests in the Republic of Congo (Brazzaville), through its 85%-owned subsidiary, SOCO Exploration and Production Congo SA (SOCO EPC). It holds its interests in the Democratic Republic of Congo (Kinshasa) through its 85%-owned subsidiary SOCO Exploration and Production DRC Sprl. The Company’s net entitlement volumes were approximately 15,500 barrels of oil equivalent per day. more »

Share Price (Full)
-3.3  -1.1%
P/E (fwd)
Yield (fwd)
Mkt Cap (£m)

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1313 Posts on this Thread show/hide all

kenobi 10th May '12 454 of 1313

ee, I don't recall how tender offers work, or at least how the eo. did, it weren't their different prices that were offered, a certain amount of shares to be bought at each price. I'm imagining that it would have to be at a premium to the current price, but I see you've allowed for a little premium in the 80M you quote.

This is the sort of thing that would actually make a significant difference if you are serious about adding value through buy backs, you would then have approximately 10% bought back, but even at these levels lets not get carried away. this still won't make a huge difference even if you believe the sell out price would be double the current price (or a bit more). assuming that 10% of shares are bought back at half their eventual value, presumably this is a 5% uplift in the final price, not to be sniffed at, perhaps a sale price of 630p instead of 600p, certainly significant. As discussed previously it would also be good if the premium a buyer pays isn't too big because that makes it easier to sell to your shareholders. Mind you if you're only selling soco vietnam the premium over the shareprice is less important.

It's certainly worth several million quid to the directors so I'm sure they'd consider that the idea has merit !

cheers K

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redhill 10th May '12 455 of 1313

Kenobi, perhaps a factor would be that the hypothetical 10% of shares bought back would (presumably) not include any sold by directors or the larger shareholders (Pontoil, L&G, etc) so would come from the remainder, thereby reducing the liquidity and consequently having an upwards effect on share price? It would have no different impact on eventual NAV per share which would be as you suggest but might have a disproportionate positive impact on the sp in the meantime. Just a thought.


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swanvesta 11th May '12 456 of 1313

In reply to emptyend, post #453

Wouldn't a tender offer be exactly the kind of thing extrader was suggesting a little earlier? It seemed to me he got fairly short shrift for the idea!

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emptyend 11th May '12 457 of 1313

In reply to swanvesta, post #456

No - nothing like it at all!

He was suggesting that  management launch an MBO, under which they would retain the benefit of any uplift in the share price. Kenobi is suggesting effectively an acceleration of the buyback - which would be to the benefit of ALL shareholders equally.

I'm certainly in favour of the latter (if it is practical) but I am utterly opposed to the thought that a large slug of shareholder value should be creamed off by a small subset of shareholders.

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swanvesta 11th May '12 458 of 1313

In reply to emptyend, post #457

It didn't seem to me he was talking of a full MBO, when he said: would give an opportunity for some to 'take the money and run' and others to hold out for eventual greater capital gain.

I guess the language can be confusing when the BoD, and associated insiders, have such a large shareholding.

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emptyend 11th May '12 459 of 1313

In reply to swanvesta, post #458

It didn't seem to me he was talking of a full MBO

Well you very clearly failed to read his original post then, which made it completely clear.

No wonder I got so much flak and he appeared to have so much support for his half-arsed idea (sorry ET - don't take that personally!), if people don't actually bother to read the proposal and think about it.

I'm all in favour of ideas that increase the potential upside for shareholders as a whole - but I'm completely opposed to the idea that my interests are damaged in order to provide some short-term traders with a short-term opportunity for gain! And I would think that any shareholder who has held for more than a few weeks would be too!


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kenobi 11th May '12 460 of 1313

We need to keep in mind what the objective is, is it 1, to maximise the return for shareholders who stay in, or 2 to bolster the share price and allow people to exit at a slightly higher price without damaging the share price ?

If it's the first, then 80M would be best spent on a buy back, if it's the second perhaps it would be better spent on a divi, which would bolster the share price 80M could represent a 7 or 8 % divi. It seems to me from the last agm that the management did not commit to pay a divi, but they did suggest that they would if they couldn't find suitable opportunities to invest. As MD has suggested in the past it might focus the minds of potential buyers if they saw some of the cash flowing out of SOCO to the shareholders.

I guess the truth is that unless they really have other plans needing capex, they could afford to do both, though they'd probably be best advised not to speak of a divi if they are trying to buyback shares in bulk. I would suggest that if they did manage to buy back 10% of the stock, and then paid a 7% divi, the share price would respond very favourably. Especially if the tgt p1 production issues are resolved and p2 comes on line, and there is a plan for handling the capacity upto 90k as originally envisaged for tgt p1 & 2.

cheers K

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emptyend 11th May '12 461 of 1313

In reply to kenobi, post #460

We need to keep in mind what the objective is, is it 1, to maximise the return for shareholders who stay in, or 2 to bolster the share price and allow people to exit at a slightly higher price without damaging the share price ?

It is very clearly the first. There is no "massaging" objective for the buyback.

If it's the first, then 80M would be best spent on a buy back, if it's the second perhaps it would be better spent on a divi, which would bolster the share price 80M could represent a 7 or 8 % divi.

They aren't mutually exclusive. If the share price stays low and there is no VN deal then I'd expect a divi to be proposed (probably in H2) in tandem with buybacks.

However, don't start out with unrealistic ideas for the scale of the divi. Dividend policies are always looked at in terms of sustainability over the cycle (and taking account of investment opportunities). For a company like SOCO International (LON:SIA), I'd expect to see a dividend of about 6p per share per annum (so perhaps a 2% yield) and with dividend cover of 10-12x.


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extrader 11th May '12 462 of 1313

Hi all,

Scene from The Graduate :
Mr Robinson - " Sounds like a pretty half-baked idea to me, son"
Ben - " Oh no sir, it's fully baked".

My apols to ee and others for what came over as a 'half-arsed' proposal.

I didnt mean an MBO in the Lees sense, but rather a larger scale version of what CLS Holdings (EPIC : CLI)has done for many years - a share buyback/tender in lieu of dividend (for reasons connected with the controlling shareholder Morstedt family tax position).
Typically, CLI - a property company - tender to buy back 1 in 40 or 1 in 50 of existing share stock, at a 20-40% preemium to the prevailing market price, the premium often approximating the "NAV" of the property co.

Shareholders are free to tender or not ie to 'take the cash' or to see the value of their holding perCLI share rise.

In Soco's case, others have suggested the tender could be as material as 1 in 10- 15, just from existing cash/cash-flow......throw in a reserves-based short-term loan and Soco could tender for 20-30% of its stock, maybe on a fixed price offer, say 400p (for argument's sake) or some kind of reverse Dutch auction that allowed meaningful price discovery on a company that was no longer (effectively) about E, but mainly about P.

May the debate continue !


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Isaac 11th May '12 463 of 1313

If the company is going to be sold, well if that is the intention in the next 6-12 months I don't favour a dividend as it is not tax efficient.

I would rather they buy back as many shares as possible.

If the management try and do a MBO I think I would go absolutely MAD and all hell will break loose.

The more shares they buy back and the longer the price remains at these levels the easier it becomes for them to do a MBO but they had better not, the way to add value is to find Oil not steal it from fellow shareholders.

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kenobi 11th May '12 464 of 1313

Fair enough ee,

I was really just drawing attention to the £80M we are suggesting using on buy backs and what that represented in terms of a divi. That leaves us to ponder, what would be better for the shareprice buying back 10% of the stock (if this is even possible at these prices ), or a 7% divi. ( as a one off).

clearly a one off divi won't have the advantages that a sustainable divi might. would a 2% divi do anything at all for the share price ? hard to say, at least we'd be getting something back for our hard earned cash. Of course one factor that makes a big difference is the eventual timescales for some kind of monetisation of SV. If we believe its soon (say the next 6-12 months), then buying stock back now in bulk to give us a 5% boost in exit value seems like a good deal. If the reality stretches out beyond then, you have to wonder if the money might not be better invested in exploration, assuming suitable opportunities can be found.

Anyway, the next month will give us some more information in the IMS and at the AGM. The elephant in the room is the market, are we heading to a crisis that will make takeovers more difficult ? or will the second half of the year see a calming of the EZ issues ?

cheers K

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redhill 11th May '12 465 of 1313

In reply to kenobi, post #460

We need to keep in mind what the objective is, is it 1, to maximise the return for shareholders who stay in, or 2 to bolster the share price and allow people to exit at a slightly higher price without damaging the share price ?

To be more explicit about share buybacks in the circumstance of the first reason above for a company looking to sell - the objective will be specifically to maintain or raise the base sp on which a bid may be constructed. Reducing liquidity by a tender of substantial number (10% as suggested?) would (probably) reduce liquidity and therefore should force the sp upwards to the benefit of remaining shareholders.

I'm not proposing management do this as they will know best, just thinking of the effect if they did.


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kenobi 11th May '12 466 of 1313

the objective will be specifically to maintain or raise the base sp on which a bid may be constructed. Reducing liquidity by a tender of substantial number (10% as suggested?) would (probably) reduce liquidity and therefore should force the sp upwards to the benefit of remaining shareholders.


I really don't know,  I can see an approach where paying a big divi and saying,  vietnamese assets are for sale,  we're under no pressure to sell as the shareholders are getting a good return on their investments, we want a good price  might work.   or buying up lots of shares might work.   I'm really thinking out loud.   It is one of those much argued about issues among shareholders what is better divis or buybacks.  My answer is always it depends on the price.   But a sustainable divi would push up prices too,  although it should reduce the eventual buy out price logically  whereas buybacks should increase the eventual buy out price. 

One important factor is when the management believe a deal can be done. 



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swanvesta 11th May '12 467 of 1313

In reply to extrader, post #462

Thanks for clarifying, extrader. And phew - I'm not going mad ;-) Though like Isaac I will be absolutely fuming if they do try a Lees type MBO.

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emptyend 11th May '12 468 of 1313

In reply to extrader, post #462

I didnt mean an MBO

Well you shouldn't have said you did then! Look what happened - not only did I fly off the handle but I seem to have landed up in the same nuthouse as others, who would be equally annoyed by such a thought  ;-)

To be clear - I think there is every reason for the company to tender for its stock. And I would be entirely happy for that to be done if it doesn't compromise the listing or change the ultimate endgame.  One can (rather pointlessly) debate what size of tender might be appropriate - but I think 25-50mn shares (say 10 - 15%) would be a reasonable objective and financeable without recourse to a loan (I'd guess they have c $300mn cash).

Note also that any EGM requirement could be addressed at the same time as the upcoming AGM.

I like the idea of an auction also - and there are various interesting ways in which that could be constructed, depending on precisely what objectives are intended.

As I said in #453 last night: "opportunism is merited by market circumstances".

Lets see what happens.


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Spurticus 11th May '12 469 of 1313

Interesting (for a Friday afternoon) paper explaining the Asia-Pacific shift to dated Brent pricing:

Speaking of which:

- Vietnam's PV Oil sold Te Giac Trang (TGT) crude for
July-December loading to three buyers - Shell, Vitol and Unipec
- at a premium between $6.60 and $6.70 a barrel to dated Brent,
trade sources said.
The exact purchase volume by each buyer was not known, but
they will have to lift a minimum 6,700 barrels per day of TGT as
requested in the tender.
The premium is much lower than PV Oil's offer of $7.65 a
barrel and are also at the lower end of the $6.50-$8.00 range
fetched for June cargoes.

Not sure about the 'much lower', in view of the current market uncertainty.



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Isaac 11th May '12 470 of 1313


L&G have been selling down Soco....Now below 3%

Other (please
------------------- ------------------------------------------------------ -------
3. Full name of person(s) subject Legal & General Group Plc (L&G)
to the
notification obligation:
------------------------------------------ ----------------------------------------
4. Full name of shareholder(s) N/A
(if different from 3.):
------------------------------------------ ----------------------------------------
10 May 2012
5. Date of the transaction and date
which the threshold is crossed
------------------------------------------ ----------------------------------------
6. Date on which issuer notified: 11 May 2012
------------------------------------------ ----------------------------------------
7. Threshold(s) that is/are crossed L&G (Below 3%)

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Isaac 11th May '12 471 of 1313

Also interesting to note that Soco bought back their max, avg vol of 680k the last 20 trading days

SOCO announces that on 11 May 2012 it purchased 170,000 of its ordinary shares at an average price of 266.0641 pence per ordinary share. The highest price and the lowest price paid for these shares were 271.2 pence and 263.6 pence respectively. All the purchased shares will be held as Treasury shares.

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Isaac 11th May '12 472 of 1313

  11 May'12 - 13:56 - 8380 of 8400

The other explanation of course is that they aren't "selling SOCO" as such.....they are just "selling the market". I don't doubt that a chunk of the volume is related to basket trades on the market (or on oil-related stuff). Lets see how that pans out....

Clearly not, interesting to see L&G selling.


They are not very smart at all, they were previously selling Soco in Jan 2009 near the lows....

They then just held on, until recently when they began selling again...


And in that period the chart has done the following :

Soco Share Price (5 years)

Seriously, who employs these idiots? They seem to have a track record of selling at the lows.....And yes I doubt Soco is going to go significantly lower from here.

Management should look to buy out the seller in bulk IMO.



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redhill 11th May '12 473 of 1313

In reply to Isaac, post #472

Management should look to buy out the seller in bulk IMO.

Is that allowed? Buying shares to treasury in the market or by tender is allowed, but are they allowed to make a deal with one shareholder?


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