i bought 2mm shares and will vote for Samuel Terry agenda - why you should too

i recently bought 2mm shares in the open market, in the 1.88-1.9 range, and will vote for the STAM agenda. I think this is a very clear-cut case of horrendous mismanagement; poor governance; and chronically misaligned incentives. importantly, i think both mid- and long-term value creation under the STAM aegis/control will be much more likely. I think this is a very loaded bet, in our favour, at this juncture, explaining the size of my position. let me explain why.

i am not sure everyone on this board realizes, but STAM is perhaps the best long-term fund manager in Australia (see their track here: https://www.samuelterry.com.au/performance-data.php). they have crushed the market, by multiples, over any time period you care to examine. they are simply laser-focused on value creation, extraction, and best practice, and that is evident in their results. Most pertinently, they have direct, practical experience with recalcitrant O&G companies who suffered from poor capital allocation and misaligned management and fixed that up, to great effect at Horizon Oil (3x in 3yrs, see their slide in the deck).

moreover it is important to realize, this is now STAM's largest position - 10-11% of their fund, $80mm - and may well be their largest, discrete bet, ever. furthermore they have broken from past practice and gone publicly activist, and hostile, in such a fashion that I believe even if this initial attempt fails they likely try again by either calling another shareholder meeting (and running a full slate) or perhaps increasing their stake and going north of 10% and continuing the fight.

contrast that against management who, after paying themselves millions and owning near zero stock, then go and buy Who Dat despite doing no due diligence (apparently, given the immediate production cut) for >7x FCF when their own equity was trading at 3x FCF; and now are raising super expensive 10.5% non-callable 5yr paper when they have literally no need for the capital and are gushing cash.

so, the difference in quality between the activist, and the incumbent management, is obvious and gargantuan. in one corner we have Australia's best fund manager betting with the weight of 15yrs outperformance, making this their largest position, and going public with the fight. in other other corner we have this junior varsity, conflicted, joke of a management team. its not really a fair fight.

this has implications for where the stock should trade post all this, if STAM gains control, either implicitly or explicitly. it is my contention that a STAM-controlled or inspired entity should trade at premium to similar assets in the market, simply because you know STAM is not going to eff up what is in their control - they are pros. right now, depending on the metric you look at, KAR trades at a 1-2x EBITDA multiple discount, or a 3-4x EBIT or P/E multiple discount, largely because of management mistakes and no dividend. but of course we do not need that to win handsomely from here.

if STAM had their way they would probably just institute a payout policy near 100% of net income and this would immediately be a 20-25% yielding stock. how can the equity continue to trade at 35% FCF yield - where it does today - if most all that cash is coming back as a dividend and we know it won't be squandered. it looks to me like KAR has underperformed the AUD Brent price by 25% since the Who Dat deal - at a minimum I expect that to be totally reversed - implying 20-30% upside in KAR equity - should STAM prevail.

i think the market is really asleep at the wheel here. the stock has barely moved since the STAM deck and substantial disclosures but over 5% of the company has traded hands. there are no long-term, pro-management shareholders on the register. It is my contention that a large portion of all shares bought since the STAM filing will end up voting for STAM's agenda. as a result I think it is quite likely they succeed and management either suffers a humiliating Rem Report strike (leading to board renewal/implicit STAM control); or STAM will subsequently increase their stake and call another meeting and go for the jugular.

either way, it looks to me like there is 25-30% upside for the taking, largely independent of oil price movement, in the event STAM wins control here (note I have hedged half my position with a short oil position to try to isolate for the idiosyncratic upside i discuss). I intend to vote all my shares in this fashion - alongside STAM - and would encourage anyone who wants to see the stock back at $2,5, minimum, with a pathway higher, to do the same.

DYODD.