• Rumors of an NJR / SJI merger do not encourage us to anticipate material stock price upside for either company
  • The most likely outcome is a low premium merger-of-equals, funded with 100% stock
  • Utility mergers involve a number of unique transaction structuring considerations, including corporate governance arrangements, utility merger approval considerations, and the treatment of unregulated subsidiary synergies
 
 
  • Despite all of the political, regulatory and trade uncertainty faced by the UK, we are bullish on the Pound
  • Both cost-push and demand-pull inflation factors point to materially higher UK inflation
  • UK real rates are currently negative across the entire forward curve
  • The BoE may have no choice but to raise nominal interest rates to tackle higher UK inflation
 
 
  • The price profile for global crude oil prices is asymmetric
  • US production costs continue to decline, the US rig count continues to grow and the "fracklog" of drilled but uncompleted US wells is at a record high
  • OPEC production cuts are unlikely to enjoy high compliance rates, especially if and when global crude prices decline
  • Moreover, OPEC is a small and declining share (~ 33%) of global crude oil production, by reducing production it is generating market share for non-OPEC nations
 
 
  • LCI's stock price is over 90% correlated with daily stock price movement in VRX (!)
  • The LCI/KU merger only resulted in modest leverage and the market appears to be over-looking a number of structural benefits from that merger
  • In particular, the acquisition debt cash flow sweep, the net working capital improvements and the non-earnings dilutive cash tax (IRS) deductions appear to have gone unnoticed
  • A number of the acquisition financing outcomes were beyond the control of LCI management
  • The subsequent improvement in capital market conditions permits LCI to refinance (and/or renegotiate) a number of these acquisition financing outcomes
 
 
  • Small cap regional US banks currently trade inversely to their ROEs (!)
  • A major outlier is FGBI which might be attributed to a mis-understanding of the Louisiana economy
  • LA is a shale gas rich state but has limited crude oil reserves.  Moreover, it is a leading crude oil refining state which means that it can actually benefit (net-net) from lower crude oil prices
  • FGBI has historically adopted a very conservative approach to managing its loan book and, despite this conservatism, has a robust track record of high ROE outcomes
  • The current FGBI valuation does not reflect its historical operating performance relative to its regional peers, nor does it reflect the benefits of not being subject to the regulatory burdens imposed on the large cap US financial institutions
 
 
  • Gas LDCs like ONE Gas are not expected to be materially, adversely impacted by lower WTI crude oil prices.  Employment data reveals that crude oil E&P is only a minor contributor to regional employment
  • Recent distribution volume declines in the OGS service territory are principally weather related and not due to reduced shale oil production
  • Despite this, OGS appears fully valued, especially on a US gas LDC relative PEGY multiple basis
  • A DDM valuation suggests there is at least 30% intrinsic value downside from current price levels
 
 
  • In early 2016 the JOY stock price had declined around 90% from its 2012 highs, and the JOY bonds traded as if the shareholder equity was worthless
  • We estimated that JOY's cash flow from operations would need to decline at a 20% CAGR from 2016 to 2021 for its current debt maturities to not be repaid in full
  • Importantly, the JOY net working capital asset exceeded its entire third party debt obligations
  • There are several reasons to believe that JOY also has access to a number of additional liquidity triggers which can be used, if necessary, to address any future credit concerns
  • The impact of the Paris Agreement (COP21), even if fully implemented by the signatory nations, is not as punitive on coal production as the market appears to be currently assuming
  • JOY's stock price does not appear to reflect any of the potential upside from carbon capture and storage technology, nor its "safe haven" status in relation to the fossil fuel "divestment" campaign
 
 
  • WTW took advantage of robust capital market conditions in 2013 to refinance its debt and to defer major debt maturities until 2020
  • While WTW currently trades at a discount to its comparable "weight loss" peers, its revenues continue to decline and its intrinsic value appears to be at least 50% below the current equity market stock price
  • WTW's management revenue target is equivalent to a 13% annual growth rate from 2015 to 2018.  It is heavily dependent on a major turn around in online revenues
 
 
  • By adjusting D's trading multiples for its projected earnings growth rate, and its current dividend yield, it appears to be trading in line with its North American utility peers
  • A sum-of-the-parts valuation indicates potentially 10% to 30% stock price upside
  • A "look through" valuation of D's LNG terminal - sourcing LNG valuation multiples from both the US and Australia - points towards total valuation upside of almost 40%
  • The prospective listing of D's MLP may provide a valuation catalyst and could crystalize the intrinsic value of the LNG assets
 
 
  • Most of our published articles focus on what our analysis suggests is likely to happen to future security prices
  • OMC is an exception to that rule.  This article focuses on several reasons why the OMC stock price is unable to outperform the market - despite its superior operating performance - and several steps that company management could take to enhance its relative stock price performance
  • In particular, the market does not appear to reward OMC for its impressive operating performance during economic downturns.  The market may not appreciate the inverse relationship between GDP growth and OMC's operating margin
  • The Board of Directors has publicly stated its intention to undertake a number of governance changes commencing in fiscal 2018
  • However, we believe that there are some obvious, additional steps which could be implemented immediately to encourage the market to re-rate the stock
  • Immediately dealing with the economic dead weight of its excess cash holdings and instituting a number of substantive corporate governance reforms comes with the added benefit of reducing the risk that these reforms will be imposed on the company by activist investors