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25 January 2021 Update
Allied Minds plc ("Allied Minds")
Following its initial investment in the fourth quarter of 2018, the Fund focused on securing a major reduction in the excessive parent company costs of Allied Minds: ongoing HQ expenses were running at an estimated US$17-20 million at the time. These have now been reduced to approximately $5.75 million per annum. In response to concerted pressure exerted by the Fund, Allied Minds ended its extraordinary practice of paying management 10% of gains arising from any successful individual investment, without taking account of the losses incurred on other investments in the portfolio (the "Phantom Plan").
In October 2020, Allied Minds released its interim results and referred to the "underlying strength of the portfolio". Spin Memory was described as "the preeminent MRAM IP provider […] transforming the semiconductor industry". Reassuringly, it was stated that "Spin Memory has made significant progress against its key operational objectives since its last funding round". Allied Minds'43% shareholding in Spin Memory, based on that last funding round, was valued at $77 million. This compares with its $44 million cash cost since 2006. In July 2020, Allied Minds invested a further $4 million into Spin Memory. Spin Memory's carrying value therefore comprised around 35% of net asset value. After 15 years, Spin Memory remains a "pre-revenue" business.
Following this update, the Fund held detailed discussions with the board of Allied Minds and expressed its concerns.
On 4 January 2021, Allied Minds announced that due to COVID-19, the required testing of Spin Memory's chip had been delayed for nearly nine months, that this delay had affected Spin Memory's ability to secure new customers and that as a result, this, coupled with an unexpected loss of a government bid in late Q4 2020, Spin Memory is now facing liquidity issues. The contemplated funding round is expected to be at a far lower valuation than its carrying value.
On 15 January 2021, Allied Minds announced that its Chief Executive had "decided to step down from the board with immediate effect." Going forward, the portfolio will be managed by the three non-executive directors. The Fund welcomes the streamlined management of the portfolio, in which three companies comprise more than 90% of the latest reported carrying value.
The Fund notes that the current 28p share price compares with an estimated 26p per share carrying value of the 36.6% holding in Federated Wireless together with parent company cash of 6p per share. Holdings in BridgeComm, Orbital Sidekicks, TableUp and Spark Insights are together valued at 12p per share. Whilst there is uncertainty as to the current value of the Spin Memory holding, the Fund estimates that at least 5p per share could be achievable. Overall, therefore, to trade at the Fund's estimated net asset value of Allied Minds, the share price would have to increase by 75%.
1/2
The Fund expects the Allied Minds board to proactively seek to realise the inherent value of the portfolio in a timely manner and return proceeds to shareholders. It should be open to any structure that could achieve this objective including, if considered appropriate, reversing Federated Wireless into a Special Purpose Acquisition Vehicle (SPAC).
Over the period, the share price of Allied Minds declined by 10%.
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Complete failure of a company. The people at the top should be put in jail.
How is it a complete failure of a company?
Am I missing something in this update?
Oh I see you're looking to buy back in according to your posting history NuckyT. Makes sense.
Why post if you think the company is a failure?
Why would you want to buy back in if the company is a failure?
Very heavily exposed on this one and have been very disappointed . Reading between the lines, CA have been piling on the pressure on management in order to release value. Volume trading is low . Fingers crossed.
Good update from crystal amber.
And I think Dungiven is right - CA have been piling the pressure on to release value. Hence the changes made.
I averaged down to 36p today, but my buy was registered as a sell.
Good luck all :-)
Preciousmaj.... wait and you’ll see how
No doubt, the investment case is strenghened by having an entity like CA in your corner.