So I decided to look at SPX like a giant American Corporation (let me call it “ACo”) with a market cap of US$33 trillion - genius, isn’t it?
2/n
At any one point, I can buy or sell ACo. Thereby the market offers me a price/share - currently US$ 4,410.
In return, I receive a value per share. Isn’t that how it works? Price is what I pay, value is what I get?
3/n
So I looked at the financials of ACo (SPX) and its FCF. Also, I know, I need to know the price of money.
After all, my alternative is to buy the US 10Y Treasury risk free - genius again!
4/n
Let me tell u: ACo is a wonderful company. I checked. It produces countless product & service we use daily.
iPhones or Software so I can do this; petroleum products; cars; food; banking, insurance, health care services; it even builds houses. I love that …!
5/n
It gets better. ACo achieves great margins, suggesting it has a moat. So wide that it returns 20cent for each $ of shareholder capital invested.
Ok, it does not mean mgmt returns it to me. They mostly keep it to expand the business & make more $, so they explained.
6/n
Anyway, after checking it all out I’m convinced ACo has wide moat around its economic castle which will allow it to defend its revenue growth, margins & cost for 30 years.
American Corporation is bad ass good. I’m trigger happy…! Check for yourself…!
7/n
In fact, for my DCF I will assume ACo will grow as fast as it did bw 2015-2019 while retaining 11% FCF to sales margin until 2030.
Let’s make America great again.
8/n
Ok, I think I’m better off to allow for margins to reduce a tiny bit after 2030.
I mean ACo will not invent a new iPhone each decade. Also, American presidents love to spend taxes. Then there is climate change. Re-building our energy system will squeeze margin a bit etc
9/n
Lastly, I have to consider the cost of capital of which the 10-Year Treasury is part. Not a big deal.
The yield is currently 3.5%. But hey, it once was as high as 16%. That seems silly to me. I just ignore that and assume 3.5% to keep it simple.
What is ACo worth now?
10/n
Well, now I am lost. Why is everyone and their brother buying when my DCF says this ShitCo is worth only 3,201/share?
Why is this stonk trading at US$4,140/share? What if the 10Y goes to 4% or ACo margins contract?
In my X-mas tweet I told you that China was already open from a crude buying perspective and that China will slow down imports as it risks hitting product tank-tops. Was I right?
First, some argued that "China re-opening is bullish oil". Few had data and some looked at them the wrong way on top.
Yes, China discharged 11.075mbpd crude & condi in Dec, the highest discharge in all of 2022 & one of the highest numbers ever. My "China IS OPEN" pitch!
2/n
I had my reasons to argue China does not need more but less crude imports. I knew the data already. How so?
For 1, China's (tank-top like) product storages does not allow for Dec like imports.
Let me address the Tailwind Energy acquisition as proposed by @SericaEnergyplc management @MitchFleggCEO, given we are days away from submitting our vote on it.
For full disclosure, Burggraben holds 3.4m shares (1.2%) of $SQZ.
1/n
Upfront, is the acquisition accretive or not?
Answer: yes it is.
Using the same assumptions (price deck; FX; etc), SQZ's intrinsic value on a standalone basis is 310p per share (NAV table on left) vs 449p post acquisition. That is a value increase of 45%.
2/n
Here is another way to look at it: the EVs of SQZ on a standalone vs merged basis.
Only in year 2023 is the deal dilutive as SQZ assumes £277m of net debt from the merger with Tailwinds. Thereafter, merged SQZ creates a more negative EVs (has more cash) than standalone.
An interest article on the coordination of Western military equipment supplies into Ukraine by the secretive US/UK/NATO commando based in Wiesbaden, Germany: the little known International Donor Coordination Center (IDCC).
The West “approved” roughy $40bn in military equipment aid so far to Ukraine. Not surprisingly, the US makes up 2/3 of that…
2/n
IDCC coordinates everything, from weapon system to its respective military training in the West to equipment maintenance (remote support or fixing in West) or ammunition supplies…
Well, China's consumption in Dec matches 2021 levels and is near an ATH ALREADY while it will have to digest the largest property bubble in history of mankind in the coming years.
My view: China went ex crude growth in 2021
2/
More importantly, China's product stocks may reach tank-tops if refiners do not reduce runs or increase product exports.
The latter is not easy. It needs (clean) vessel capacity to ship diesel to new markets such as Europe or Africa. Don't expect miracles.
By now, most of our followers know the word "Dunkelflaute", the kind of weather with little wind or sunshine to power their respective power installations.
Northern Europe is still in one. Let's briefly look what that means for the German's Energiewende...
1/n
In the last 30 days, this is how the German grid produced electricity.
During this period, RES produced little despite GER having some 146GW of installed RES (wind; solar; waste; biomass; hydro).
2/n RES = Renewable Energy Sources
We looked at December in more detail. The message for the most of November is the same.
As of 17/12/2022, RES produced 23.3% of total consumption in December - i.e. average for 17 days.