Thread by @glr_1990

Really odd sentiment around #SQZ at the moment, since drill results and UK demolition of O+G companies

Oil has been volatile, but #SQZ is 85% gas

Take a look at these day ahead prices, 380p a therm!

Futures also up to 390p/t

1/...

The drop to 272p a share today, valued the company at £740m, but its highly likely (even after drill costs and tax) they will have ~£500-£550m CASH by Y/E (yes, in three weeks)

So the EV is estimated just over £200m

2/...

Lets look at H1 production and average therm price

26.6K and 175p therm average

Note that down

3/...

Lots to note below, but ultimately combined cash at the end of H1 was £418.7m

Operating cash flow of £312m, as per above, this is on an average of 26.6K production and average therm of 175p, after costs 136p realised

4/...

Further down the update, #SQZ give us an updated cash position as of 23rd September

£482m cash (vs todays cap of £750m, as it has just risen back over 280p)

5/...

The drill, which was a bust, is estimated to have a net cost of £13m (this is after WFT allowances etc, so a total hit of £13m)

The share price has dropped ~15% since this news

6/...

#SQZ was kind enough to provide us with current production levels per month, we can also combine this with the average gas and oil prices

7/...

Between July and 23rd Sep, #SQZ increased its cash position from £418m to £489m, an increase of £71m (to the very bottom line!)

Just focussing on gas at the moment, which is 85% of production

If you recall, they also had a shutdown in August (summer maintenance)

8/...

The current DA price, as per the original tweet, is 380p a therm

This is higher than ANY of the averages realised in the FY 2022 to date (not higher than individual day prices, they hit ridiculous levels, but average)

I have DEC avg. way over 300p at the moment

9/...

So at £750m market cap, with £489m as of 23 Sep 2022, at ~100p average I don't see them making more than ~£12m PAT per month for Oct/Nov averages at 28-29K production

However at 300p, December will come in at ~£45m PAT, or £1.5m PAT per day

10/...

Hence why I strongly believe Y/E cash will come in between £525-£550m, valuing the company currently at around £200-£225m

Tax goes up in January to 75%

11/...

Still, even at 100p, the company makes ~£10m PAT per month (not too bad vs an EV of £200-£225m!)

At todays DA prices, it makes £45m+ PAT per month, which is absolutely unprecedented for a company valued at (minus cash) £225m

12/...

At todays prices, it is therefore likely trading on a PE of about 0.4, obviously those prices wont last forever, but even if they last a couple of months, you then get an EV of ~£150m

IF next winter is cold, or prices spike in Q2/Q3 due to refilling of gas storages

13/...

Then we see a repeat of last seasons pricing, even half of it in H1 would net £175-£200m to #SQZ

In summary, even with the negative sentiment around operating in the UK, it is highly unlikely #SQZ does not return significant value in the next 12 months

14/.