Russia invades Ukraine -5

16:21 24-Feb-22

Right on cue, here's confirmation of Lumen's 25 cent dividend with a March 7th ex-date.  This shouldn't surprise anyone who was really paying attention, but there was a lot of bad information out there.  LUMN hasn't traded meaningfully after hours yet, though, and this could easily be lost among everything else that's going on.

I've just finished listening to the latest White House press conference.  Putin hasn't been sanctioned personally and Russia hasn't been cut off from SWIFT.  Biden claims that sanctions against its major banks are more effective than that would be, but I don't think anyone can reasonably support that statement.  He mentioned a month for them to work.  By this morning, it was already a forgone conclusion that Ukraine would no longer be ruled from Kyiv, though Zelensky is still there for the moment.

It seems pretty clear that while leaders are preparing more detailed sanctions, Europe isn't ready to forego Russian hydrocarbons, at least in the short term.  That be also be a reflection of the viewpoint voiced by the U.N. Secretary-General that the invasion is "not irreversible".  No matter what happens from here, though, inflation will still be a greater threat than ever, particularly in commodities, which is perhaps why Fed officials have signaled that a rate hike in March is still likely.  NFE is now up over 11% to trade above $24, but that just gives it a 2023 projected P/S ratio of 1.6.  I could still see the stock tripling in due course pending signs of progress in the upcoming report.  However, I also note that Brazil and its vice president have had unusually divergent responses on Russia today.  I'll also quote a very well written comment from a subscriber on Xebec:

Two observations from me.

1. Xebec is based in Quebec.  The federal Liberal party needs what little it gets out of Quebec to stay in power.  So there is likely to be federal government support for Xebec through multiple federal agencies such including BDC (Business development bank of Canada) , EDC (export development Canada), and IRAP (Industrial Research Assistance Program).  There are more programs than this.  In each example I have selected a link that identifies a funding vehicle that might apply to Xebec.  There may be others within the agency that apply.  These federal agencies have a need to balance their investments in Quebec with the rest of Canada – they can’t show favoritism to English Canada but can and do show favoritism to Quebec. 
2. There are provincial based funding agencies as well within Quebec.  I am not familiar with them because I live in Ontario and have never had to seek them out.  However, I know that there is a large Quebec based pension fund CDPQ that has investments in Xebec.  I don’t know the full extent of their stake but it seems to be significant.

My conclusion from this is that these agencies have ways of sending money to Xebec to avoid dilution.  They can afford the risk because of the political backing.  They have a political and fiscal incentive to keep Xebec going and growing.  I don’t know what kind of financing would be made available nor do I know what the terms would be like nor can I comment on how likely this is.  I recall seeing an EDC investment in Westport back when it looked like they were going to expand sales in China with Weichai.  That may be a template.  My own experience with BDC tells me that they will issues loans to purchase hard assets like production equipment.

I've had in mind the past support from BDC, EDC, CDPQ, and the terms have been favorable.  I'm not so up on Canadian politics, though, so I was unable to judge how likely more support was.  I am encouraged by this comment, though, as well as Xebec's presence across Europe and moves into the U.S.  I also don't think the company losing a board member after less than a year is a negative sign.  Rather the specific reference to "avoiding any potential conflicts of interest" points to the possibility of further deals.

In the broader market, it should be obvious that the potential for unintended consequences has risen dramatically.  Thus, I see the weakness in VIRT as an opportunity on the potential for higher market volume and volatility.  I also reiterate the solely American opportunities embodied by PPL, CWEN.A and LUMN.  Even though Lumen's block chain edge press release strikes me as a solution in search of a problem, where are seeing dabbling from a broader array of businesses.  Invest carefully.

On 2/24/22 03:06, Esekla wrote:

Russia has launched a full scale invasion of Ukraine.  This isn't the outcome that I expected, but I was prepared for it from an investment standpoint with my lean into natural gas, since I now expect this means that all Russian energy ties to Europe will wind up being indefinitely suspended and it being banned from the SWIFT payments system.  That remains to be confirmed, as further sanctions are still being considered, but if not, then Ukraine is essentially being conceded by the west regardless of what weapons and financial support it offers.  Europe's vulnerable energy position makes it uncertain how quickly that will happen, even assuming it happens at all.

Most global market futures are down at least 3%, the dollar has strengthened by about a cent to €/$1.125, Brent is already above $103, but WTI is still at $97.68, and Henry Hub natural gas is at $4.91.  I see New Fortress as the best positioned.  I'll update this note as more becomes clear and after we hear from Kinetik and Golar.