THREAD: Long Serica #SQZ (market cap: £800m)
I haven’t tweeted much in 2022. A bear market will do that to you. So, why pipe up now? Because I feel so strongly about Serica that I can’t keep quiet.
This is no ramp. Serica’s market cap is £800m with a 50% free float.
I haven’t tweeted much in 2022. A bear market will do that to you. So, why pipe up now? Because I feel so strongly about Serica that I can’t keep quiet.
This is no ramp. Serica’s market cap is £800m with a 50% free float.
No minor tweeter can move such an elephant. But why so bullish?
First, what is Serica? It owns gas fields in the North Sea. These produce 5% of the gas that we use in the UK. Serica is cheap. Its share price is £3. It has £2 of net cash.
First, what is Serica? It owns gas fields in the North Sea. These produce 5% of the gas that we use in the UK. Serica is cheap. Its share price is £3. It has £2 of net cash.
So, you’re paying £1 for the business. What do you get? Over £1 of free cash in 2023 alone. Says a big broker. By October 2023, you should have £3 of cash. In other words, more than the market cap. Is there any gas left at that point? Yes. 6 more years of gas production.
Say the gas price suddenly tumbles back to its long-run average at this stage. (Unlikely - given a supply shortage after years of exploration refusals by woke politicians.) Then you are still looking at 10p of FCF per year. (Note the big broker does not think this happens.
They think there is c £1 of FCF in 2024, too.)
Big picture, the EV is negative by October 2023. You get the business for free from then.
But there is extra spice. Serica is currently drilling in the North Sea. A new field called North Eigg. If it finds gas,
Big picture, the EV is negative by October 2023. You get the business for free from then.
But there is extra spice. Serica is currently drilling in the North Sea. A new field called North Eigg. If it finds gas,
Serica estimates its reserves will double. That should add 30% to the share price. (Based Serica’s current reserves - i.e. the bit of the business ex-cash - being worth £1. So, the same again should mean an extra £1 on a £3 share price, or 30%.)
When do we hear about North Eigg? One day in December, the CEO has said in a RNS. He also said in a conference call there is only “a 1 in 5, to a 1 in 3 chance” of finding gas. Call it a 25% chance. Not massive. But who cares when the net cash in the core business should
exceed the market cap within 11 months – with or without North Eigg.
Meanwhile, the chance of another windfall tax in the next year is low. Rishi moved the annual tax rate for oil and gas companies up from 40% to 65% in May. Then to 75% this month.
Meanwhile, the chance of another windfall tax in the next year is low. Rishi moved the annual tax rate for oil and gas companies up from 40% to 65% in May. Then to 75% this month.
Only Norway (at 78%) is higher. And Sir Keir can’t do his worst until January 2025 at the earliest.
The way I see Serica, it’s heads you break even, tails you make 30%. And if you make 30%, it should be in the next 28 trading days. Then 2022 is over, and good riddance to it.
The way I see Serica, it’s heads you break even, tails you make 30%. And if you make 30%, it should be in the next 28 trading days. Then 2022 is over, and good riddance to it.
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