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hope to get more information from the circular and/or Hargreaves Lansdown, but as a matter of interest I note that Ravenscroft are themselves market makers for the TISE exchange, and deal in the exchange's own shares. I do not suggest they will necessarily trade demerged company shares ( conflict of interest at first sight )
https://www.tisegroup.com/market/trading/
On the demarger, I meant to add something more positive about holding shares in MxcUk - that I take note of what has been said ( below ) And also that Ravenscroft did not buy into MxcUk without seeing advantage to their own shareholders, and Smith, Weaver and associates plainly see advantage to themselves, with them receiving shares on a pro rata basis in the same manner as all MXCP shareholders.
"The fees from our transactional businesses flow to MXC Capital (UK) Limited ("MXCUK"). Post year end, we completed the sale of 25% of this company to Ravenscroft for £2.25 million. The investment represents a deepening of MXC's relationship with Ravenscroft, which we believe will help to grow and drive further value within MXCUK, as well as providing additional opportunities for our investment business. We continue to assess the strategic options for this valuable part of our business." ( we now know demerger is part of that ) and also,
" We are delighted that Ravenscroft has decided to take a significant stake in our transactional businesses, demonstrating their belief and confidence in the MXC model. It is testament to the excellent relationship we have built with Ravenscroft as a result of working together on the GIF and we look forward to building on that relationship to create further value for both MXC and Ravenscroft's shareholders."
The Ide results were welcome, drawing a line under things. Some seem to have expected too much too soon, but indications are that with Mxcp's 43% and loan notes, and with their usual support from Kestrel, and board representation, all parties have a vested interest in swiftly completing the remedial action, and growing the company. We are now waiting to see developments with Adept 4, and how MXCP will come out of that acquisition. And I expect MXLG to make acquision(s) soon. There is also the tender offer, which I suspect I shall find of minimal interest. In any event, if there is a choice to be made, I shall try to acquire as many shares as possible in the new demerged company. One never knows what it may lead to, and it would seem unlikely there will be anything to lose, as they come 'for free' with promises of a dividend, albeit that is likely to be minimal. But we await more information.
It is my opinion far too much emphasis has been placed on NAV. That is probably because in recent times MXCP has set its first target at closing the gap between share price and NAV, something repeatedly mentioned in updates. But the situation has changed, with Íde and Adept4 being given long overdue attention, by the appointment of a heavyweight board at Íde, and the acquisition of Cloudcoco at Adept4, bringing what appears to be a growing company with an aggressive management team into the mix. In addition to those two, MXCP has it's private companies, which include the Liberty Global joint venture, investments on its own account in others, and also through its relationship with Ravenscroft and the GIF. The value of the transactional company will now be fully recognised through the new listing, with Ravenscroft owning 25% and we MXCP investors due to receive pro rata shares of the 75% we own on the relevant date (but we await the circular ) The company has £21.5m which we have been advised will be invested over the next few months. Undoubtedly there will be acquisition(s) into MXLG, and there is a strong hint that there will be a GIF follow-on fund giving yet further opportunities for investment, and the fees from their work for the fund, as well as those fees coming from the Liberty Global co-investors. The way the investments with Liberty Global are structured means that more, or larger acquisitions can be made achieving greater economies of scale. It appears that the next few months will be a newsworthy period, making investments to grow MXCP capital return. They benchmark themselves against a 2.2x return over 4-5 years. The Castleton buy and build, which is the only recent one which possibly compares to the Liberty Global ( starting to show profitability after 3 acquisitions ) buy and build, achieved a 3.3x return over 3 years. And 'size and scale' indicates the intention to build a far larger company. The next few months should further consolidate the investment base. And in my view the activity, and potential for sizeable returns justifies a premium to NAV. That would be normal for a progressive company, let alone one where most of the share price iwill be backed by assets.
We are now waiting on
Circular(s) with full details of demerger, and tender offer
Circular re. Adept4 acquisition of Cloudcoco, giving terms of loan notes and hopefully transparency on shareholdings.
Details of further investments/acquisitions, anticipated over 'the next few months."
£9m.
In view of the few buys today, I wonder if the full implications of the RNS have registered. The value of the trading arm at £10m has previously been unrecognised. That is no longer the case, with the value now being recognised in a new company, and MXCP shareholders rightly having that value transferred by the grant of new dividend paying shares, in a £10m. company.
And to a much lesser extent, " Dialogue has commenced with the shareholders of the GIF about a follow-on fund leading to potential further management fees in the future."
This is what I am talking about. Headway being made with MXLG as a trading company, and building. "With respect to our partnerships, LGJV successfully completed two additional transactions and now has a solid platform of monthly profitability. Additional deals continue to be reviewed."
It is nice to see things are proceeding as planned with them. That is of itself a successful recovery exercise. Íde will feature, I believe, in future plans. Adept4 may also. But in relation to MXCP I think it has for the time being a tendency to yesterday's news. MXCP have other fish to fry, in the shape of Ravenscroft and Liberty Global, and it has been made clear cash will be invested on other acquisitions over the next few months.
Nice mention of Ad4 and Idp think they have plenty left in the tank
MXCP value our shares, as we stand today, at 116p.
https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/MXCP/14218009.html
Excellent, straightforward update highlighting the benefits accruing to investors, with further updates indicated on future investments. Cash intact for investments, confirming no chance of dilution as company adds to its portfolio.
Major Shareholders. http://mxccapital.com/investor-centre/company-information/
Quite apart from the other close parties to MXCP, it is a fact that the partners driving this, Smith and Weaver, have a combined shareholding of 32.56% - worth just under £21m. As pointed out by Nick, their personal fortunes have taken a battering over past years. Having said that, the issues bringing things to this level, Redcentric ( in the past ) Íde and Adept ( in the process of being stabilised, funding in place, etc) are largely resolved, and MXCP has started on a new investment round with Ravenscroft and Liberty Global.
Investors talk of management having 'skin in the game.' They have. I can think of no greater motivation.
The 'tip' is just that - an opinion on the future, based on where MXCP is now in this case. The trend has been up since February. It depends when one bought in. I believe the trend will continue over this year. That is my 'bet' as developments are published. We shall hear something more on the return to shareholders. I think it will not amount to much, but it is an indication of company optimism on the future.
Welcome the recent rise but we're now only back where we were 3 years ago MCAP wise. Share buy backs are intangible to shareholders and are largely invisible to their impact on share price.
Only initiating a dividend (even a special one) will see the share price align itself with NAV again!
A last piece of information on existing NAV ( as opposed to future value )
"The fees from these first two initiatives flow through MXCUK, the holding company of MXC's transactional businesses, which is where the majority of fees generated by MXC reside. It was this company in which Ravenscroft took a 25% stake, valuing the equity at a minimum of £9 million. This value is not fully recognised within the net asset value of MXC and is unrecognised for shareholders. MXCUK now has high levels of recurring revenue and we are considering strategic options that will realise the current and potential future value inherent in the entity."
Some profit taking, but the buyers are right to do so. MXCP has turned a corner, and will go on from here. Great emphasis has been placed on NAV, but that is a measure of existing assists held. The last sustained buy and build was Castleton, where MXCP achieved a 3.3x return over 3 years. MXLG will be bigger, and better, which is why MXCP is co-investing with 25% though it retains 100% voting rights in MXCJV, allowing for greater leverage on larger total sums overtime. I factor that 3.3x return into a forward share price in relation to MXLG, very possibly a minimum figure with a buyer in the shape of Liberty Global waiting. And if investors believe only 2.2x will be achieved across the board, that lower figure should be factored in, pro-rata.
MXCP will soon have to update on progress with Liberty Global. They have as yet made only 3 acquisitions. Integration should not be a problem. It is very much still early days there, as future acquisitions are selected. I expect solid progress.
Investors should bear this in mind when considering the future here.
Castleton was borne out of what was left in Redstone plc, a turnaround that began in August 2010. At that time Redstone had just posted an £8 million EBITDA loss and across bank loans, investors' loans and creditor stretch was significantly in debt. Two of the members of the current MXC team successfully restructured this business over the course of the next few years and then demerged the managed service side of the business to form a new company which became Redcentric plc. Following the subsequent disposal of Redstone's infrastructure solutions business, a small company generating a few million pounds of revenue was left. This was renamed Castleton and MXC set about enacting a strategy to roll up small software and managed services companies in the social housing sector into Castleton, which resulted in 8 acquisitions. The outcome today is a strong and successful company with excellent organic growth and cash conversion. Having been invested in Castleton since inception, and with a 3.3x return on our capital over 3 years, we took the decision to sell down our stake during the year and at the end of August sold our last remaining shares. Castleton was in fact the fourth buy and build from scratch completed by members of MXC which, in total, were built to a combined valuation of £230 million.
Simon Thompson calculates a NAV of £1.15, as things stand, yet crucially, no forward value is yet placed on the partners' expertise,the high potential Liberty Global and Ravenscroft partnerships, or the blossoming transactional business, from which returns to shareholders are planned :-
"As has been demonstrated in its track record over the last four and a half years, the Group can deliver a 2.2x return on its capital and that is our aim for the next four to five years. This, combined with the return to a profitable trading position, leads the Board to believe it is time for MXC to re-establish a method of returning cash to our shareholders. Therefore, the Board would like to introduce a capital return programme to be based on our NAV which we believe will increase as we deliver against our objectives. The programme will be largely funded by the cash profits from the trading business but will represent a percentage of the NAV declared at each reporting period. By example, at 28 February 2019 the NAV was £65.4 million, representing 97p per share. The Board is currently undertaking a review of the appropriate percentage and the best way to effect this return, whether by way of dividend or share buyback."
The other partnership is with Ravenscroft, an independently owned investment services group based in the Channel Islands with £4.7bn of assets under administration. MXC acts as consultant to Ravenscroft in its role as investment manager to the GIF Technology & Innovation Fund in which the States of Guernsey has invested. MXC contributed £5m of the fund’s initial investment pool of £38m and it should be fully invested by the end of the calendar year. In addition, Ravenscroft paid £2.25m for a 25 per cent stake in MXC’s transactional businesses, highlighting the value it sees in MXC’s deal makers. MXC’s retained 75 per cent stake in that business is in the price for free, too.
The bottom line is that with MXC’s previously poorly performing listed investments turning the corner, and the directors targeting a 2.2 times return on capital over the next four to five years on its investments, then there is ample scope for the company’s share price to return to a decent premium to NAV in due course. Trading on a bid-offer spread of 89p to 90p, MXC's shares are well worth buying.
The re-rating has also been driven by news that Adept4 has entered into a non-binding agreement to acquire Cloudcoco, a profitable company that offers cloud and related technology solutions and one with a strong and growing pipeline of business. It was established two years ago by the former directors of Redcentric (RCN), a UK IT managed services provider. If the deal goes ahead then Adept4 will issue 218m shares to the vendors to give them 49 per cent of the company’s enlarged issued share capital of 445m shares, so reducing MXC’s stake to 15.3 per cent.
Another reason for Adept4’s re-rating is because MXC has agreed to buy £5m of Adept4 unsecured loan notes for a discounted price of £3.5m from The British Growth Fund on completion of the Cloudcoco acquisition. This is the only debt Adept4 has. The fact that MXC will now own the loan notes, which are due to mature between 2021 and 2023, is a positive move as it removes the financial risk that was subduing Adept4’s share price. The £1.8m uplift in MXC’s shareholding adds a further 2.7p a share to its own NAV.
It’s also worth flagging up that the private equity funded takeover of Aim-traded Tax Systems (TAX), a leading supplier of corporation tax software to the large corporate sector and the accounting profession in the UK, completed at the end of March this year. MXC had invested £14.9m in the company and realised £24.2m of which £200,000 of the £9.3m profit will be recognised in its forthcoming annual results.
Value opportunity
I estimate that MXC will book total realisations and investment gains of £12m (17.9p) in the second half of the financial year just ended to lift its closing net asset value (NAV) to £74.3m (115p a share after adjusting for the market value of shares acquired by the company’s Employee Benefit Trust through MXC funded loans), significantly higher than its current market capitalisation of £60.5m. Moreover, MXC’s share price is now completely backed by four of its investments: £15.1m (22.5p) shareholdings in IDE and Adept 4; net cash of £19.5m (29p); a loan portfolio worth £11.5m (17p); and investments of £14.5m (21.5p) held in private companies.
Clearly, with MXC’s shares trading well below my spot estimate of NAV then no value is being placed on the two MXC partnerships that are generating over £1m of fee income. One is with a subsidiary of Liberty Global, the international TV and broadband company, to create an IT services provider focused on small- and medium-sized business customers. Both partners have invested £3.5m each.
The other partnership is with Ravenscroft, an independently owned investment services group based in the Channel Islands with £4.7bn of assets under administration. MXC acts as consultant to Ravenscroft in its role as investment manager to the GIF Technology & Innovation Fund in which the States of Guernsey has invested. MXC contributed £5m of the fund’s initial investment pool of £38m and it should be fully invested by the end of t
MXC’s valuation gains worth exploiting
Simon Thompson
MXC Capital (MXCP:90p), a technology-focused merchant bank run by a management team that backs investee companies they represent, is set to report a bumper set of annual results for the 12 months to 31 August 2019.
That’s because there have been material movements in the value of its listed investments, the most dramatic being the near five-fold increase in the carrying value of MXC’s stake in IDE (IDE:7.35p), a £29m market capitalisation mid-market network, cloud and IT managed services provider. IDE has gone through a cost reduction programme to create a more appropriate and profitable cost base. It has been successful which has its customers the reassurance they needed. This also means that IDE’s management can now focus on driving the core activities of the business to rebuild value for shareholders. This is clearly happening.
In IDE’s latest annual results, chairman Andy Parker revealed that “towards the end of the 2018 financial year, several of our material customers renewed their contracts, some on a multi-year basis, and at the time of writing (28 June 2019), the pipeline of opportunities across the business both with existing and new customers and partners is the strongest it has been since my involvement.” The improvement in trading has worked its way through to a much improved financial performance, too, as “IDE has been trading profitably at an adjusted cash profit level in the year to date.”
Moreover, following a refinancing that resulted in MXC investing £8m in loan notes to enable IDE to pay off all its bank debt, the solvency risk subduing the company’s valuation has been unwinding, a factor that has accentuated the share price recovery. The point being that all of IDE’s loan notes are held by its largest shareholders, thus giving management the breathing space to focus on the ongoing turn round strategy.
By my reckoning, MXC’s holding of 172.8m shares in IDE is now worth £12.7m, a hefty £10m more than six months ago when I last advised buying MXC’s shares at 85p ('MXC returns to trading profitability', 9 May 2019). The valuation uplift adds almost 15p a share to MXC’s last reported net asset value (NAV) of 97p.
Further balance sheet gains
It’s not the only material balance sheet movement either as Aim-traded shares in Adept4 (AD4: 3.55p), a provider of 'IT as a service' to small- and medium-sized businesses in the UK, have quadrupled in value since MXC’s interim results in May, lifting the book value of MXC’s shareholding from £612,000 to £2.41m. Adept4 is a turnaround situation, too, and its directors recently reported that the business has returned to modest levels of profitability at the cash profit level.
The re-rating has also been driven by news that Adept4 has entered into a non-binding agreement to acquire Cloudcoco, a profitable company that offers cloud and related technology solutions and one with a strong and growing pipeline of business
That was just the 'tip' today. The facts are to come by RNS from MXCP, on MXLG and other matters.
I post only from my personal perspective as an MXCP shareholder.
I like Íde on account of its size, potential after turnaround, it's board, and the time, effort and financial backing given to it by MXCP and long term MXCP backers Kestrel, and the likelihood of sale at an appropriate time. Here we are currently invested in both, and wish both well, and my further comments may apply also to Adept4 ( I have no knowledge of Cloudcoco, shareholders, etc ) but it appears to me MXCP, and we investors, have far more to gain from Ide, over which MXCP and Kestrel have complete control ( 52.2% )
MXLG is MXCP's venture with Liberty Global and consists of SICL, 365ITMS, and Koris. It is capitalised at £14.3m. Ian Smith's partner Tony Weaver and MXCP advisory board member Steven Zhang represent MXJV at board level.
On what is known from press and other releases, it is possible now to envisage MXLG as a company with £20m+ turnover, a buy and build adding products, revenue and customers into which to cross-sell, whilst integration and savings on synergies take place.( something which did not take place at Ide, prompted Ian Smith's ire and will be different here with MXC and LGE in joint direct control )
As stated at the beginning, "The newly established joint venture company will initially seek to undertake a series of acquisitions in order to create an enterprise of size and scale, taking advantage of MXC's knowledge and understanding of the market, Liberty Global's existing network and solutions, as well as the opportunities both parties see to consolidate what remains a fragmented market."
Something is planned for Íde, and It will be a sale at the appropriate time, down the road. MXLG need to get size into their operation, to create the scale envisaged from combination with Liberty Global existing assets. Should MXLG be the buyers, ( and it would be a great deal for MXCP to pull off - they would pay 25% and get back 43% plus loan notes and their accrued value ) there would even now be an immediate£60m+ revenue and growing company. And by the time it happens, if it does, Íde will be in far better shape than currently, adding value there, to MXCP and to the overall MXLG proposition, with the distinct possibility of Ex Capita Andy Parker at the helm of the private company, pending acquisition by Liberty Global.
I anticipate further MXLG acquisition(s) in the interim.