Source: rt-online.ru

It’s sad to say, but the tax risks I talked about in my last article about Tatneft (OTCPK:OAOFY) have started to materialize. Even though oil prices stood more or less the same, the stock plummeted by 18% in just one month, approaching March levels.

I would be glad to tell you that these risks are overdone, and the stock price looks like a bargain – but not this time. The effect of taxes is quite sensitive, so the decline in the share price looks more or less justified as the company won’t please investors with dividends to the same extent as it did in the past.

How New Taxes Will Affect Tatneft

In mid-September, the Ministry of Finance announced its plan to abolish tax benefits for old oil fields and the production of super-viscous oil. Together with the adjustment of the excess profits tax (EPT) announced in the summer, the Russian oil industry may lose about 300 billion rubles ($3.8 bn) per year. On September 30, the State Duma approved the changes in taxation, and now, it has been adopted by the Federation Council.

Tatneft is one of the largest users of tax benefits for super-viscous oil production. With the total volume of oil production of about 30 million tons per year, super-viscous oil production in 2019 amounted to 3.4 million tons – more than 10%. In 2019, Tatneft received 39 billion rubles of tax benefits and about 8.8 billion rubles in the first quarter of 2020. Last year, the company’s net profit under IFRS amounted to 192 billion rubles. Thus, the MET tax benefit accounted for roughly 20% of the net profit for 2019 or 27% of EBITDA.

Therefore, the elimination of this tax benefit will have a huge negative impact on the dividend base.

Activist investor Dan Loeb is urging The Walt Disney Company’s CEO Bob Chapek to halt its $3 billion annual dividend payment and redirect the funds towards content production and acquisition for its streaming service, Disney+, according to a letter Wednesday obtained by FOX Business.

Ticker Security Last Change Change %
DIS WALT DISNEY COMPANY 122.89 +2.04 +1.69%

“By reallocating a dividend of a few dollars per share, Disney could more than double its Disney+ original content budget,” Loeb wrote. “These incremental dollars would, based on our analysis, generate returns that are multiples of the stock’s current dividend yield by driving high life-time-value  subscribers to your [direct-to-consumer] platform.”

Besides bringing in additional subscribers, Loeb said “increased velocity of dedicated content production will deliver several knock-on benefits spread across your existing base including elevated engagement, lower churn, and increased pricing power.”

Loeb, who doubles as CEO and chief investment officer of hedge fund, Third Point LLC wrote that driving more subscriber growth, while reducing “churn” and increasing pricing will “present the opportunity to create tens of billions of dollars in incremental value for Disney shareholders in short order, and hundreds of billions once the platform reaches a larger scale.”

Churn is the rate at which customers stop subscribing to video services.

Disney announced in its third quarter earnings report in August that the streaming service had surpassed 60 million subscribers. Meanwhile, Disney-owned Hulu has surpassed 35.5 million subscribers and ESPN+ has surpassed 8.5 million subscribers.

Ticker Security Last Change Change %
AMC AMC ENTERTAINMENT HOLDINGS INC 4.04 -0.02 -0.49%

The letter comes as the coronavirus has prompted the acceleration of cord-cutting from traditional cable and has forced media companies to adapt to a new release model while the pandemic continues

  • Hedge fund billionaire Dan Loeb urged Disney to suspend its dividend payments and instead use those funds to grow Disney+ streaming. 
  • The founder of Third Point wrote a letter on Wednesday to CEO Bob Chapek saying that reallocating this dividend money could double the company’s streaming services budget for original content, Bloomberg reported. 
  • Loeb’s push to build out streaming comes as in-person movie theaters continue to suffer throughout the pandemic.
  • “Every Hollywood executive has been able to enjoy first-run films in the comfort of their home theaters for years,” he said. “We urge you to democratize this experience.”

Investor Dan Loeb urged Disney CEO Bob Chapek to end the company’s annual $3 billion dividend payments and redirect those funds to building up Disney+ in a Wednesday letter.

The founder of Third Point said that reallocating dividend money to Disney+ could double the streaming service’s budget for original content, bring in additional subscribers, lower churn, and boost pricing power, according to the letter obtained by Bloomberg. His push for streaming comes as in-person movie theaters continue to suffer throughout the pandemic.

“Every Hollywood executive has been able to enjoy first-run films in the comfort of their home theaters for years,” he said. “We urge you to democratize this experience.”

Read more: A $2.5 billion investment chief highlights the stock-market sectors poised to benefit the most if stimulus is passed after the election — and says Trump ending negotiations doesn’t threaten the economic recovery

In August, Loeb initiated a long position in Disney during the second quarter and said in a quarterly letter that streaming is Disney’s “biggest market opportunity ever with potentially $500 billion of revenue.” 

Shares of Disney rose as much as 2% during Wednesday trading. The media giant is down nearly 15% year-to-date but has gained over

The Tanker Trade: COVID-19 + Floating Storage

The tanker trade was a very popular thematic trade in spring 2020 which led to immense trading volumes; one stock in particular: Nordic American Tankers (NYSE:NAT) enjoyed an all-time record daily volume. This ‘tanker/contango’ or ‘floating storage trade’ lasted from March 2020 to May 2020 and developed due to a COVID-19-related collapse in global oil demand in early-2020, combined with an initial Saudi ‘Oil Price War’ initiated on 8 March. I flagged this trade on Value Investor’s Edge that weekend in March, and I brought the thesis public on Seeking Alpha on Friday, 13 March.

Crude tanker stocks performed wonderfully from mid-March to end-April, but trading momentum fizzled as the enormous oil contango evaporated, and OPEC+ did an exceptional job of holding to their unprecedented export cuts. Additionally, the global economy (with the notable exception of air travel and related jet fuel demand) opened up fairly rapidly, which helped oil markets balance. We therefore had a neat boom-and-bust trading cycle over the course of three months (March-May). We then had four months of residual ‘hangover’ from June-September.

Trend Analysis & ‘Popularity’ Reflection

During the brief time period from mid-March through early-June, there was more interest in shipping trades than at any point I can recall in recent history. The only thing close was last October-November during COSCO sanctions, and if we utilize Google trends for “oil tankers” and “contango”, we can see the interest levels clearly pop out. First, “oil tankers” rose up in fall 2019, but then a massive spike in “contango” interests fueled a much longer-running trend in “oil tankers” during April and May.

Interestingly enough, “contango” peaked 19-25 April and then dropped off while “oil tankers” peaked 19 April to 2 May and then dropped off. Both these drops marked

This research report was produced by The REIT Forum with assistance from Big Dog Investments.

The topics we discuss are going to be extremely relevant to the residential mortgage REITs. The table below uses BV as of Q2 2020 (if the company has reported earnings):

Ticker

Company Name

Focus

Price to Trailing BV

BV Q2 2020

Price

ORC

Orchid Island Capital

Agency

0.98

$5.22

$5.13

DX

Dynex Capital

Agency

0.94

$16.69

$15.72

ARR

ARMOUR Residential REIT

Agency

0.88

$11.11

$9.83

AGNC

American Capital Agency Corp.

Agency

0.88

$15.86

$14.00

NLY

Annaly Capital Management

Agency

0.87

$8.39

$7.27

CMO

Capstead Mortgage Corporation

Agency

0.85

$6.79

$5.75

TWO

Two Harbors Investment Corp.

Agency

0.73

$7.24

$5.27

CHMI

Cherry Hill Mortgage Investment

Agency

0.70

$13.41

$9.39

AI

Arlington Asset Investment Corporation

Agency

0.51

$5.63

$2.86

MITT

AG Mortgage Investment Trust, Inc.

Hybrid

1.07

$2.75

$2.95

IVR

Invesco Mortgage Capital

Hybrid

0.91

$3.17

$2.88

CIM

Chimera Investment Corporation

Hybrid

0.81

$10.63

$8.66

EFC

Ellington Financial

Hybrid

0.80

$15.68

$12.58

WMC

Western Asset Mortgage Capital Corp.

Hybrid

0.66

$3.17

$2.09

MFA

MFA Financial

Hybrid

0.62

$4.51

$2.80

ANH

Anworth Mortgage Asset Corporation

Hybrid

0.59

$2.85

$1.69

PMT

PennyMac Mortgage Investment Trust

Multipurpose

0.88

$19.39

$17.10

NRZ

New Residential Investment Corp.

Multipurpose

0.77

$10.77

$8.34

NYMT

New York Mortgage Trust

Multipurpose

0.60

$4.35

$2.62

REM

iShares Mortgage Real Estate Capped ETF

ETF

MORT

VanEck Vectors Mortgage REIT Income ETF

ETF

Note: There are three mortgage REITs we need to highlight here:

  • Two Harbors – We are using Q2 2020 book value adjusted to add back the $.54 per share as a result of terminating the management agreement for cause. If this decision was made prior to the end of Q2 2020, it would’ve raised BV accordingly. This is equivalent to GAAP book value excluding the