ResearchSeeker wrote: Longs, and Momentum Traders,
Baytex is now two quarters as a combined entity, and one annual report with the first half solo, and the second half merged. Not much time in, as a combined entity.
Since I have not posted in a long time, I will say that “Senior Notes and Pepto Bismol, they go together”! I am not a fan of the debt. I do like pushing the due date from 2027 to 2032 on some of those senior notes, though I would rather be debt free. If I remember right, similar debt swapping techniques were used in the years during, and after, our last acquisition of Raging River Exploration Inc in 2018.
To believe that debt has value makes no sense to me. Personal net worth subtracts debt, and so should corporate net worth. The debt is only valuable to the banks that never earned the capital to begin with, and then loan it out for a profit.
What Baytex has shown us is they will buy back shares. The proof is there from multiple sources, and some posters would like us to believe otherwise. I would like to think we will pay down debt as we did with our past CEO. Our new CEO thinks debt has value, and I still don’t agree. I believe this lack of confidence is just one of many reasons why our stock is down, besides the obvious reasons.
Our outstanding shares to free trading float size is not favorable. I have not estimated it in a while, because I know it is not a number to be proud of.
Our new CEO has a recent history of serial acquisitions. The only way we can make an acquisition now, is with debt, or stock dilution. This does not offer confidence to those currently considering Baytex. The thought of adding debt, or stock, puts fear into the minds of potential investors, and only time can cure that. Baytex will need to show they are serious about eliminating debt, and stop trying to convince people, who know better, that debt has value.
Here is what I would like to see done. Use the term “Threshold” instead of “Target” in the reports.
Immediately halt all stock buyback activities. 90% to debt repayment, 10% to dividends. Let the dividends buy back the stock for those who choose to do so. Set a threshold of $1.25 Billion before changing this allocation.
From $1.25 Billion to Zero, use 85% towards debt repayment and 15% to dividends, and continue until $500 Million in positive cash reserves are achieved. This will eliminate the possibility of bankruptcy, and can be the beginning of making acquisitions using cash, instead of debt, or share dilution.
At the $500 Million cash surplus threshold, open an NCIB with 40% to buybacks, 35% to cash surplus, and 25% to dividends.
I personally don’t care about metrics that have been created by financial engineering. Money can be made using the cash surplus to cover royalties, operating costs, and other things. When carrying debt, everyone gets less for their money, including corporations.
I would support a change in CEO at this time, to one that has a pay it forward mentality, rather than pay it back. If our board was to consider allowing a takeover at this time, we shareholders would get a bad deal, while board members could get rewarded in a big way. Ed LaFehr and the board of years past kept their promise to shareholders. To this point, only buybacks have been executed by this new board. Debt repayment has gone slightly backward.
We all could really use $120 Oil about now. Back to the shadows for me. I won’t have time to reply or post much. I read posts a few times a week, and ignore most of them. I am long Baytex, for the Long Term.
Good Luck To All,
RS