Four key issues
Coal price - will it actually come down as per "consensus forecast"?
Tariff realised has come down squeezing margins - what can be done?
Cash collections key to reducing debt
Can any debt be re-financed at lower interest rates.
Leverage if any of these go the right way is very significant
£480m of plant on the balance sheet
£285m loans (1 year or more)
Yours for market cap £69m - for ~750MW generation capacity
Hum £23m of directors share based payments...well share price has to be £1 for three days (so there's a selling point)
£320m of 10-15% loans maturing MArch 2025 - someone making some money out OPG then. Why not refinance that.
Director's remuneration a mere £750k, must go along way in India
Main risk is paying off the 10-15% debt by 2025, requiring ~£500m medium term, plus £70m short term trade debts....
So this is all about polishing the finances, restructuring debt.....
and political risk as revenues come from state owned Electric company...
Whilst pouring in coal, getting paid for the electrons, and becoming green
Quick boiler conversion to burn trees, source some wood and shipping, job done.
What could possibly g o wrong?
They have never, as far as I can recall, given profit numbers on any quarterly or interim figures. They always take about production (record results), tariffs, coal prices and macro issues and leave us to draw our own conclusions.
Nothing sinister in this report, but good news on production and cash collection, hence the modest rise in the sp. Continuing patience called for though, as always with OPG...
Today's trading statement does not, as far as I can see, mention
the word profit anywhere, which in my view is a bad sign. And
the coal price is up instead of down, which is very bad for OPG' s
margin on sales, which is simply too thin, indeed jolly bad.
Does anyone know if our Chairman, Mr Arvind Gupta is anyway related (family of business) to Mr Ajay Gupta of South Africa who is currently being investigated for siphoning government funds meant for poor regions for his own gain via his association with the 'ousted' former SA president Jacob Zuma?
I read somewhere Ajay and his brothers have connections with energy companies, hope it isn't our very own OPG.
Share price still drifting. I got aout at 26p, put my money on
LPA, done well, and pretty sure more to come (good figures there
In the event of OPG coming out with good figures at next
Results or Trading Statement, then the share price could
shoot up, but I have my doubts....
See RNS. Perhaps a bit of a change at the top as announced today is just
what is needed. There have been miscalculations/misjudgments on coal
prices going forward which were the cause of poor performance last year.
Some decent buys last few days, very little selling. Potential for a nice short term 10% gain in my opinion if you are so inclined. Personally, I'm holding on longer term (unless it surges dramatically)...
AndyRB - Nice rise today, you'll be pleased. As for Tristel, I sold
a good while ago. Currently taking an above average interest in
Redt Energy (RED), may become a nice little riser, but as always
take care, DYOR.
Give it a year and the coal price coming down, the share
price could easily go double, if not treble. Just a few hints
of things going the right direction (margin-wise) and up
Not without risk, not for Granny, but very interesting for a
punt or two.
The material revenue growth has at least given the market a reasonable clue about the inherent profit potential once coal prices are sorted and the tariff rises flow through.
Has to be a strong and hopefully inevitable recovery play, albeit likely to take time for sentiment to improve. The sp fall was overdone, the problem is the lack of shares available in the the market to allow enough purchases to go through....
I have not looked at OPG for several years but did so to-day out of morbid curiosity. Back in 2011 when the price was 97, it became clear, as the year went on that the management statements were totally unreliable and, as far as I can see, have been so ever since. The excuses vary but the result is the same i.e a downward spiral. The only wise thing I did was to finally sell, at a substantial loss but much less than if I had held. I do not know what goes on in the company and, I doubt if any of the overseas investors do either.
The sp fall and general comment represents an over-reaction in my view. There are limitations to what hedging they can take out and fundamentally they run some of the most efficient plants in India. Load factors continue to improve, tariffs are due to rise and the coal price will fall.
I accept their rating will be affected medium term but a forward p/e of c.3.5x is ridiculous given the medium term prospects. Their market cap is lower than when they first floated with just an idea, whereas they are now a c£40m pre-tax business so must be ripe for takeover or eventual recovery. Darkest before dawn as they say....
305020 - I totally blame the management. Trading update 31 May 2017 gave no indication that it was at it was completely un-hedged and it was at the mercy of future roller coaster coal prices. What an utterly moronic way of running a business. Running this sort of business is relatively simple - agree a price and length of contract; hedge the profit for the contract period; once the contract comes to an end repeat. I made an investment decision based on what Gupta put out in that trading statement, which gave me comfort for 2018 projections. He isn't fit to run the business.
I am less angry than some posts on here...
or indeed anything angry at myself!
the coal price has been in a steady downtrend for several years with very low volatility,
and was forecast by industry experts and by the futures market to continue on that trend.
Then the Chinese Gvt makes an unexpected policy decision and the price "spikes"
OPG were hedged to a degree and in effect this has caused me to be lazy as an investor.
the OPG share price did not initially react to the large rise in the Coal price because there were hedged, but the spike lasted longer than expected and now they have had to 'come clean' (excuse the pun!).
So, the company ahs many failings, but I was aware of those, and the risks with a majority dominant controlling shareholder but thought I had them priced in, but I was not monitoring the price of their underlying cost i.e. coal. If I had then the recent share price fall could have been very easily avoided. So , yes I am angry, but I take full responsibility that my lazy investing has cost me to lose value on OPG.
In this instance I am now actually glad to have a controlling dominant shareholder, as this might force his hand. I've always thought that OPG would be worth much, much more to a large Power conglomerate than be by itself. The finance cost would be lower, the operational risk would be diversified, and the industry risk would be spread between coal and renewables in a way appropriate to the Indian economy - so the value of OPG to a larger power concern would be much much higher than the value given to it by the stock market - recent examples of the same would be the heavily geaered GKO (take over premium 150%), and INB last year take over premium 130%). I believe that previously when there was some chance of success Gutpe would have been tempted to 'go it alone' - now that he realises the risks the business is exposed to he might well be tempted to sell out and start again - this time in renewables. No dobt there would be a premium for the equity and he could get a nice little earner as a condition so that the retun he achevies would in effect be higherh than the average shareholder. Its not great but it is the way the world works and it is the risk buying shares which are 60% held by some-one else.
So despite the loss, from here the future is bright. They have no problems with Cash Flow (unless coal price rises further) so they will come through this, they may sell out, of the coal price may fall back down. For me I have only 25p to lose now and a good 50p to gain ... it is still a risk investment and i'm not brave enough to buy more yet but i'm watching, and watching the coal price, as there will be a good return to be had here (very likely) at some point relatively soon.
All IMHO, DYOR + BoL
OPG is in my portfolio - sadly :-((
I wish you the best of luck. Gupta has messed up really badly here and what on earth were the non-ex doing! Gupta should go, but he won't and minority shareholders can expect nothing from the cardboard cutout board. I hope Gupta has learnt his lesson and I hope what he has done doesn't lead to the collapse of the Group. He really has to get someone in to run it at an operational level, otherwise shareholders will be left with nothing.The whole episode is really quite shocking and institutional investors won't be rushing in to mop up stock from the queue of sellers IMHO
Well down she goes again and the message here goes way beyond its inability to properly hedge. Investors just don't believe the company is being run properly. I have just changed my electricity supplier and have signed a 24mth contract. Eron will lump my agreement and others for this particular promotion and will lock in its profit and forward hedge. OPG on the other hand just leaves it open, in some divine belief it knows better than the rest of the commodity market and the price of coal will work in its favour. Doh. That's just gambling! I have met the management and I ashamed to say I trusted them. Now, until confidence is restored ie recruit someone who knows what they are doing, this could easily go sub 20p
Banman - Not rigged. Market makers are the 'go-between' doing the actual buying and
selling of the shares. If they are confronted with more sellers than buyers or anticipate
such situation, then they drop the price, and vice-versa raise the price when they
see more buyers coming onto the scene. I daresay they got stung buying up shares
early on the bad news day when the drop was not yet so large, so don't blame them
for not stocking up.
Spakaroo - I agree, looks like management is not on the ball, but busy
blundering into contracts that can only pay when the price of coal is low.
I apologize for my earlier enthusiasm for this company. I was fooled
by high EPS forecasts /anticipation.
I have just had a look at Newcastle Coal Futures chart and back Nov 2016 it was over 110, so I can only conclude past favourable forward ended for it full yr ending 31st Mar 2017 and it has been left buying coal at uneconomical prices. This makes the business model very risky, especially as it has a huge debt mountain to maintain. I notice in its last trading update in May it thought coal was expected to fall - it called it wrong and shareholders are paying the price. So if it can buy at 60-70 it can make good profits and at todays prices virtually nothing. It can't even pass costs on quickly. This is not how to run a sustainable power generation project, so under current ownership, its uninvestable, especially with debt repayments and interest charges hanging over it.
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