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Gulf Keystone - kicking small shareholders in the bollocks

By Tom Winnifrith | Wednesday 16 November 2016


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Say what you like about the army of lunatic small shareholders that have stuck with Gulf Keystone (GKP) through thick and think but they are loyal. Rather like a wife who keep getting beaten up by her drunken husband they just stayed on for more. It was almost touching. And now with the debt for equity complete Gulf is to kick those folks in the bollocks with a share consolidation.

The deal is a 100 for 1 consolidation and if you have fewer than 100 shares you will just get wiped out. If you have, say, 299 shares you will get only 2 new shares. The folks who will suffer disproportionately are of course small mug punters. If you are a former bond holder npow owning 2 billion shares after the D4E swap you really don't care if you lose a fraction of a new share. But if you bought, say, £799 worth of shares at the 400p peak, it is bad enought that your shares today are worth only c£8. But post consolidation they will be worth, ceteris paribus, £4. Had you bought £399 worth of shares at the peak this consolidation will see you wiped out.

Gulf's priority should be generating cash nit fretting about how many shares it has in issue. You and I know that a pound of feathers weighs the same as a pound of lead. Gulf's bosses appear not to.

Even in the City some folks seem to think that this is poor form. The Square Mile's top oil analyst Zac "The Knife" Phillips of SP Angel writes today:

Gulf Keystone (– 1.15p) – (HOLD – $203 – 519mm; 0.65 – 1.66p) – Wrong Focus: Today's announcement isn't really a surprise, but it isn't the right thing to do, not yet anyway. The smaller shareholders have supported the Company through a significantly trying period, and for shareholders holding less than 100 shares to see such an albeit significant destruction in value, essentially reduced to nil, will gall some. However, and we need to be frank here, the alternative was nil for all shareholders had the conversion not happened. While we can appreciate that the management want to separate themselves from the past and move forwards, but given that past, and the lingering debt that remains, we think that the number of shares in issue should be the least of their worries. What will change investors' perception of the Company is delivery and free cash flow generation. Our valuation range remains $203 – 519mm, 0.65 – 1.66p using the current shares in issue, but post the share consolidation the per share valuation range will be 65 – 166p. Reiterate HOLD

Ends.

For what it is worth I'd tend to go with something closer to the bottom end valuation offered by "the knife".


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