HES.
Quite a revealing blog article concerning HES.
It will be interesting to see how things pan out at the 16th. May AGM.
If I read the situation correctly (which is not a given!!, so correct me if I’m wrong), it seems that there are the following 2 scenarios ...
a) The company sells certain assets and uses the proceeds to buy back $4bil.worth of HES shares and to also contribute towards a larger dividend payout. In addition the company places greater focus and emphasis on Exploration and Production, bearing in mind that, according to ADVFN, its business is currently defined as ”Hess Corp is a global integrated energy company that operates in two segments, Exploration and Production and Marketing and Refining.”
b) “Elliott Assoc.” wish to break up the existing company structure into two separate entities. I assume one entity will be concentrating on Exploration and the other on Production. They also will sell off certain assets. However, from what’s written in the blog, it seems that they will not be using the proceeds of the asset sales to buy back shares or contribute towards a dividend.
In the short to medium term, Plan(a) may be better for shareholders as they will receive a larger dividend, both from the larger amount allocated to a dividend payout and also because of the share buy back. In addition the company will focus on areas where, one assumes, they believe they can achieve better returns.
Anyway, having said all that, I thought I’d do a bit of a comparison between the last Annual results of HES and JOY, seeing as I very recently had a look at JOY and made a few comments about the company (for what they were worth).
Speaking for myself, I believe an important component of the Income Statement of an Industrial type company, irrespective of what business it’s in, is what percentage of a company’s Gross Turnover ends up at the Bottom Line.
As we know, this contributes to the size of a dividend (if one is paid) as well as contributing, positively, to Retained Income and thereby to Total Assets, which is an important component of Book Value.
So it seems much is dependent on that Bottom Line, or Total Net Income.
From what we see in the table, JOY seems to be doing a better job in terms of producing more profit, percentage wise, from its Revenue than is HES.
We also see that, in Dollar terms, the Gross Revenue of HES was 6 to 7 times greater than JOY's. But by the time "filtering" took place through several steps down the Income Statement, the Total Net Income of HES was now reduced to less than 3 times that of JOY.
In addition, JOY's current percentage Pretax Return on Cap. Employed is nearly 2.5 times that of HES.
From a price chart perspective I see that, 4 years ago, the stock price of JOY, prior to its longer term up move, was about $20. It has since nearly tripled in price to its current $58, i.e.90% increase.
At the same time, 4 years ago, HES was at about $50. It has risen about 46% to its current price of approximately $74.
It will be interesting to see how it goes with both companies, in the months ahead, bearing in mind the different challenges that face them in the future. |
