Arjun, your discussion on the Table Stakes slide should be required viewing for Board and management teams. You handle topics in 5 minutes that tend to become over engineered. The advice on ESG reporting boils down to the basic principals of great operating companies.
Nov 18, 2023·edited Nov 19, 2023Liked by Arjun Murti
I think my favourite thing about this industry is meeting very interesting people and getting to think about complicated problems. How many people are lucky enough to be born in a time and place where you get to research all day and be paid for it??!
Good point about the variable dividend. The variable for this one upstream company I hold seems to be a bit of a problem for them at the moment: when they pay it out in good quarters their multiple doesn't go up because investors don't think it's sustainable, but when they reduce it in bad quarters the market treats it like as if they've cut their fixed dividend! (Shareholders and analysts even use the word 'cut' as in 'they are cutting their dividend', even though it is not a 'cut', only a planned reduction in payout.) Heads they lose, tails they don't win. Ouch. I guess it is just investor cynicism toward the sector.
It would be great to get your take when you think the overall market is beginning to think that this period of profitability is sustainable and multiples might start expanding.
It's the $64,000 question. When do multiples expand. Trend demand is clearly up irrespective of S-T recession concerns and profitability is similarly well on-track to exceed cost of capital for forseeable future. 1 more year? 2 more years? that is the best guess.
Arjun, your discussion on the Table Stakes slide should be required viewing for Board and management teams. You handle topics in 5 minutes that tend to become over engineered. The advice on ESG reporting boils down to the basic principals of great operating companies.
thank you Deborah! The now standard ESG slides I am really not a fan of. Industry can do much better in telling its story.
Terrific
I think my favourite thing about this industry is meeting very interesting people and getting to think about complicated problems. How many people are lucky enough to be born in a time and place where you get to research all day and be paid for it??!
Good point about the variable dividend. The variable for this one upstream company I hold seems to be a bit of a problem for them at the moment: when they pay it out in good quarters their multiple doesn't go up because investors don't think it's sustainable, but when they reduce it in bad quarters the market treats it like as if they've cut their fixed dividend! (Shareholders and analysts even use the word 'cut' as in 'they are cutting their dividend', even though it is not a 'cut', only a planned reduction in payout.) Heads they lose, tails they don't win. Ouch. I guess it is just investor cynicism toward the sector.
It would be great to get your take when you think the overall market is beginning to think that this period of profitability is sustainable and multiples might start expanding.
It's the $64,000 question. When do multiples expand. Trend demand is clearly up irrespective of S-T recession concerns and profitability is similarly well on-track to exceed cost of capital for forseeable future. 1 more year? 2 more years? that is the best guess.
Note, The Crude Chronicles just published a note about multiple expansion for anyone interested, the link is here: https://thecrudechronicles.substack.com/p/multiple-observations?utm_source=post-email-title&publication_id=729645&post_id=139029977&utm_campaign=email-post-title&isFreemail=true&r=9ftqa&utm_medium=email
EXCELLENT
Thank you again Arjun. Terrific content.