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Should Bowleven return $80million to shareholders?

Since completing the Etinde farm-out in March 2015 Bowleven has been a horrific value trap. Over the last two years the company has received $180million in cash, but the board has been unable to deploy these funds in a value generative manner. Instead Bowleven’s share price has drifted ever lower, as the directors wasted over $80million with nothing to show for it. Shareholders must act now if they are to save what value remains in the business.

The maths of a Bowleven cash return are both intuitive and compelling.

According to Bowleven’s Annual Report, the company is burning $750,000 a month on general and administrative expenses. The board has offered little to no explanation for this absurdly high sum, but if we assume £1 = $1.25 this equates to £605,000 a month. In other words, Bowleven’s share price loses 0.57p of value each quarter the company delivers nothing.

Left unchecked and the value destruction will be compounded. The current board has proven itself incapable of generating shareholder value, so the only question really is how much money should Bowleven return to its shareholders?

On 03 October last year Bowleven announced it had a cash balance of $100million on 30 September. Three and a half months later and it seems a reasonable bet the board has thrown away at least another $3million on admin costs ($750,000 average monthly spend + AGM costs). The board also bought just shy of another 5.4million shares in its share buyback programme. This will have cost the company about $1.7million (assuming an average purchase price of 25p per share & £1 = $1.25). Bowleven should now have about $95million left.

If a shareholder revolt installs a new board at Bowleven, any incoming directors will be faced with some challenging decisions. The first priority will have to be to strip the fat out of the business. Spending $9.1million a year on administrative costs is inexcusable for a company which appears to do as little as Bowleven does. It must be possible to reduce this by at least 75%, if not more. However, thanks to the apparent obsession the current board seems to have with gold plating supplier agreements, restructuring costs are unlikely to be cheap.

The second priority will be to figure out how much working capital a leaner Bowleven might require to see it through to development of Etinde. A new, confidence inspiring board could transform the market’s perception of Bowleven, but the company will need to retain enough cash to maintain its position. Any cash return to shareholders would have to be carefully balanced against this.
So what if Bowleven were to return $80million to shareholders?

At £1 = $1.25 this would equal 20p per share. Bowleven closed at 24.94p on Friday. An $80million cash return would leave Bowleven with $15million to cover restructuring and running costs. With an effective management team at the helm this would surely be enough.