Scrolled through this thread and there was plenty of speculation but not much substance.
To state the obvious, PLS has an excess cash problem (one of those good problems to have). Likely over $3.5b in cash as of today's date. Free Cashflow has been extraordinary. I did notice there was some confusion as to what free cashflow means - operating cashflow, less tax, less sustaining capex.
Group cash balance increased $2.7b in FY23 (that includes the inaugural dividend being paid).
It isn't a healthy level of cash - rather it is bloat. It has an ever increasing impact on the delta between market cap and enterprise value. Many apply EBITDA or EPS multiples to determine an appropriate Market Cap. At an extreme the ever increasing level of cash on hand makes PLS a potential takeover target.
Much of the announced plans for organic growth require cash over the medium term that will continue to be easily fuelled by ongoing profits. P1000 is a major item at ~$560m - estimated commisioning and rampup in 2 years from now. The Calix demonstration plant costs are quite minor with PLS anticipatong funding ~$67.5m. In South Korea for the Hydroxide Converter, PLS had already provided its share of equity funding and POSCO has organised debt financing to cover the remainder of construction and rampup costs (PLS may choose to increase it's stake from 18% to 30% but we are quite some time from that likely event). Media reports suggest PLS has tapped Macquarie to search for a JV partner to help build a $1b processing plant at an as yet announced location. P680 has some costs, but really from what we know from FID announcements and media reports is that over the next 2 year period there are identified potential cash requirements of ~$1.2b for growth (some of which has already been spent).
The result is that even with those potential growth related cash requirements, PLS has cash on hand right now to cover them and have more than a couple of billion left over while cash continues to roll in every quarter. Unfortunately there are not a lot of acquisition opportunities at a reasonable price for inorganic growth. What would they acquire?
Now many have posted in these threads their interpretations of the Capital Management Framework of November 2022. Some claim that dividends are capped at 30% of free cashflow and I have also read claims that cashflow must relate to the period in which a dividend is announced. Perhaps they only read the first page. Who knows?
The reality is that the CMF identified 4 key priorities - Sustaining capital, investment in sustainability commitments, strong balance sheet, and a target dividend of 20-30% of FCF.
After those priorities it outlines options for excess cash - debt reduction, organic & inorganic growth, investment in simplification & cost reductions, and to return capital by way of buybacks, capital return, or special dividends.
The excess cash beyond the regular dividend target is what I am interested in. It needs to be dealt with.
To my mind, unless PLS has a major acquistion in the works, it would be prudent to shed $1.5-2b in cash by way of dividends and buybacks. That would still leave a robust balance sheet while solving the excess cash problem.
I would like to pose a question to any corporate tax specialists. PLS announced they would start paying income tax in February 2023. The inaugural dividend of 11cps was paid in late March (at ~$330m it barely made a dent in cash on hand). It is clearly preferable for dividends to have franking credits, so how much cash would PLS be able to distrubute at this point in time as fully franked?
My assumption is that the size of the dividend will only be constrained by the ability to be fully franked. My expectation for Friday is a large dividend and potentially beyond that a share buyback to cover what cannot be distributed due to lack of credits.
If PLS were to reduce cash on hand by way of dividends and buybacks to the tune of $1.5-$2b, we are talking the equivalent of roughly 50-67cps.
Again I will ask if anyone can provide a clear answer. How big can PLS go with a fully franked dividend at this point in time given they started paying income tax in February and the inaugural dividend used credits?
(20min delay)