GREY:SGLRF - Post by User
Post by
EliGoldon Nov 06, 2014 8:37pm
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Post# 23104711
Clarke management view on Spyglass
Clarke management view on SpyglassFrom Clarke Q3 MD&A:
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We do not believe that Spyglass’ dividend-paying model is sustainable. At the most basic level, Spyglass does not generate sufficient cash flow to both sustain its production and to pay its dividend. In order to pay its dividend, Spyglass must do (and has been doing) one of the following: (1) reduce its sustaining capex thereby causing its production to decline; or (2) borrow money to fund its dividend; or (3) sell assets to fund its dividend. None of these alternatives are sustainable and the company cannot pursue them indefinitely. We are not alone in our view of Spyglass’ business model; since the company’s formation in 2013, it has traded at an extremely high dividend yield implying that investors generally recognize the unsustainability of the business model. With that stated, we still believe Spyglass’ assets are materially undervalued by the market. It is our view that business models can be changed with relative ease, but finding undervalued assets is more difficult.
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Remember that Clarke sits on Spyglass board.
Those of you who own Spyglass strictly for its dividend, this is your warning.
Disclosure: own Clarke, don't own Spyglass.