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Thanks BlueRaphus,
I am happy to wait for the answer, and do understand the likely reason for the delay. Thanks also for your well articulated views.
I think we can be relaxed on the share based payment issue although a confirmation or indication from the company is always helpful.
The amortisation of acquired intangibles is what it is and I strongly disagree that it is not part of "the underlying operating performance of the business" They are assets that have been paid for and will hopefully give value to the business in future periods; if not they should be immediately written off. At an amortisation rate of £12M p.a. it is not trivial. Having said that it is not a huge issue - I will simply not deduct it from reported costs. I suppose the argument could be that it relates entirely to the newly signed agreements and thus should be deferred but that is unlikely imv - more likely it contains a lot of accumulated asset, not all of it at margins expected by AWE.
Capitalised development costs are a more complex issue, much debated in any software or hi-tech operation. In principle I accept it is right to match costs against income, the problem is that it is so hard to really know when and how much that income will be. If one is building new tech there is always a danger of it not arising as soon, or in the amount, anticipated, when contracts were signed yet capitalised costs are absolute and certain (ofc sales can outperform too). I guess the best we can hope for is an indication from management that margins will be realised as expected and that we are warned in the event such an outcome became less certain. Also ofc we must be confident that the capital investment prior to realisation of revenue is affordable in cash flow terms in a period where capital comes at a realistic cost. If I didn't believe we could trust AWE to do that I wouldn't be invested!
Hi Monty,
Usually Jose is usually quite prompt at replying but I guess the period immediately after results are his busiest as that is when he gets the most enquiries coming in. I sent an email only yesterday and I'm prepared to wait a couple of weeks for a reply. There's no harm giving him another reminder though. His direct email is jose.cano@awavesemi.com.
My impression is that the share based payments are as a direct consequence of the M&A activity and it would have taken a few months before making these hence why they are showing in the H1 2023 figures and not in the preceding 2022 figures. If you listened to Christian's answer to the question on the capitalised development expenditure he explained that these start to get amortized as soon as the revenue starts coming in. I'll leave you with the transcript of that part of the Q&A session:
Question: Can you talk about the capitalised R&D and what’s included and if this run rate is to be expected in the long term?
Chris: Yeah sure. So what’s included in the capitalised R&D? Well, it’s mostly our own product development as we said in the presentation. So there’s a mixture of things, there will be some IP, there will be some engineering work going into those actual products. In terms of the sort of Life Time of that capitalised R&D and effectively what were amortizing over that can range from 5 to 8 years depending on the nature of what’s being capitalized. Some of that will start being amortized quite quickly because it starts amortization as soon as that technology is available for use and some of that technology is for us to use within the business so that will start amortizing quite quickly but then some of it will take longer and as Tony has said you can expect to start seeing our own product revenues materialize in 2024. That’s when the majority of what we are capitalizing today will start to amortize.
My comment: You will note the $24.7 million capitalised development expenditure. Most of that is attributed to the cost of developing the optoelectronic products for the North American hyperscaler, so when the revenue starts coming in next year this cost will be amortized against that revenue. I am however expecting quite a bit more of this capitalised development expenditure to materialise in H2 this year as well and you should see that figure pop up in the end of year result next April but it will all be eventually amortized against the incoming revenue.
BlueRaphus,
Following your helpful reply I did drop an email to IR@awavesemi.com with two questions to try to understand better the true nature of the adjusted profit adjustments. Disappointingly, a week on, I haven't received a reply from them, even to say, for e.g. my questions were too specific. I am a bit surprised as one of the issues they are grappling with is the public perception of the transparency of management. Other companies have almost always replied within a couple of working days.
In case it is of interest text of the email posing the two questions was as follows:
QUOTE
Dear sirs,
I am a private investor with holdings in Alphawave Semi in my SIPP and ISA accounts.
I enjoyed your interim presentation and was very happy to learn of your continuing strategic development. However, having come through a period of significant merger activity the profit after tax is a more interesting number for me than EBITDA, so I can understand the ongoing costs of the assets acquired, including amortisation. The adjusted profit after tax was an encouraging figure, so its justification of the adjustments made to restate the disappointing statutory profit after tax are of particular interest. To get a feel for the nature of those adjustments I have essentially two questions:
Share based payments and Retention payments.
I understood that these are substantially the result of recent acquisitions and made to encourage staff to remain working for the company following the take-over / merger. Of course it is sometimes the case you will want to award staff with an LTIP in the normal course of business but would it be reasonable to assume no more than 10% of the total cost incurred in 1H 2023 would be incurred in any future 1 year period, except as a result of further M&A activity?
Amortisation of acquired intangibles.
Is this a normal amortisation expense, to be written of over its expected useful life? Alternatively is it a 100% write off of acquired intangibles that you do not see as of value to the business. Essentially I would like to understand whether is will repeat for the next 3 plus years or is a one off in 2023.
Ideally I would like, if appropriate, to share your answers on a public bulletin board, but, if you would prefer I did not do so, I will respect that but please let me know!
I look forward to hearing from you.
UNQUOTE
BlueRaphus
Fair play mate.
We both have our positions so interesting to see how things unfold in the future.
Barcap,
I’m well aware that company reports have a positive spin on them and it is to be expected that they contain forward looking statements. That’s normal. They are however also audited and it is illegal for them to contain misleading information. Therefore you can generally count on them as good sources for understanding the company.
I usually add quotes to sentences that have been cut and pasted and often provide the link to the source. If I haven’t done that it usually means it is my own compilation effort from various sources.
I’ve mentioned before I am capable of looking for both the negatives and positives on the information I research and am more than willing to share these and offer my opinion on them.
I’m not a lazy copy and paster as you seem to imply. It takes brain effort and critical thinking to do objective research.
I share some of what I research on these boards for the the benefit of anyone who cares to read it. That is what these boards are for.
My biggest admiration is for those who can successfully work with the stock in both directions. This requires being able to understand and anticipate market sentiment ideally before it happens or at least responding to it rapidly. It requires being highly attentive, having a disciplined strategy and being emotionless. I don’t have enough time or energy to follow that method so I stick with the basic value investor strategy and lots of patience. In recent years this has proved very effective for me.
BlueRaphus
Your posts usually consist of figures ripped from the company reports and announcements which is fine but you should realise that company reports are a PR exercise and tell people what they want them to hear.
You have a lot more time than me to produce lengthy posts but to be honest I've given up reading them.
Potential investors should take care that they fully research this company in detail and be cautious of facts and figures posted by individuals.
The key is DYOR for readers of this discussion board so neither me nor you influence them too much.
We both have opposing extremee views of the future for AWE so readers should make up their own minds.
Cheers
Barcap
Copied from where Barcap?
BlueRaphus
Thanks for some more lengthy cut and pastes.
Yes, hindsight trading is a wonderful thing but unfortunately most of us trade the future not the past.
Good luck with you future readings along with your cutting and pasting. Sometimes it pays to use your own brain than copy others.
I'll continue using my intuition and digging around behind the publicised reports.
Cheers
Barcap
No the weighing machine is not corrupted. It is the ‘voting’ machine that corrupts the market and it’s the weighing machine that brings the eventual justice.
Alas, it was Benjamin Graham who made the famous quote.
Benjamin Graham was a highly successful investor and is considered one of the most influential figures in the field of investing. He achieved notable success both as a practitioner and as a teacher of investment principles. Graham's investment philosophy, which focused on value investing and fundamental analysis, has had a profound impact on the investment community and has been followed by many successful investors.
Graham himself had an impressive track record as an investor. He was able to achieve significant returns by identifying undervalued stocks and holding them for the long term. One of his most famous investments was in the stock of a company called Geico, which he purchased when it was trading at a deep discount to its intrinsic value. The investment turned out to be highly lucrative, earning Graham and his clients substantial profits.
Furthermore, Graham's teachings and principles continue to be widely studied and applied by professional investors to this day. His book "The Intelligent Investor" is considered a classic in the field of investing and has influenced generations of investors, including renowned investor Warren Buffett, who was one of Graham's students.
Alphawave is now trading a deep discount and is well positioned to become highly lucrative.
Well done if you profit well from your shorts, though for someone who believes the company will go bust it should have been a no brainer for you to make your additional short while it was sitting for a couple months in the 140s & 150s but no you could only manage it near the bottom of the market’s ‘voting’ run! As you are convinced this one is going bust I’d suggest you hold the short until the administrators knock on the door, though be warned if there’s any chance of that happening it could likely be when your grandchildren are collecting their pensions.
My view is the weighing machine is corrupted.
If people want to use this weighing machine to weigh their vegetables then double check you're not short of a few carrots.
Cheers
Hi Barcap, trading is most definitely a different game.
As someone once said "In the short-run, the stock market is a voting machine. Yet, in the long-run, it is a weighing machine."
As I have said before for anyone trying to figure out what result the weighing machine might deliver I'd listen to the CMD presentation form January.
https://www.lsegissuerservices.com/spark/ALPHAWAVEIPGROUP/events/7aadd13f-2514-47e1-8281-baced5bae5e8
I'm really just recontinuing my short from 260 to 119 that I closed a few months ago.
Hyndesight is a wonderful thing in this business.
Most people would love to trade in and out at peaks and troughs, if they did they be very rich.
I'm a trader, not someone who cuts and pastes huge chunks from company reports on every post.
I win some, lose some, that's the game.
The idea is a big win can set you up for life.
AWE is on the run and I'm chasing it down.
Cheers
Barcap
Hi Barcap I'd wish you luck with the additional short but I'm heavily long so I won't.
Instead I'll hope your overall judgement is as poor as your timing. If you'd done this a week ago you'd be well in the money at this point (or at least mitigated the original short).
I'd like to think that the hyper scalers who have entered into what are likely to be mission critical collaborations with AWE have backed the right horse.
Who knows. Time will tell.
Ooened an additional short after the open today
Barcap,
Please don't take my posts personally. They are never intended to be personal.
I don't believe I have called you any names or made any insults?
My bother is that you are in the habit of making claims without backing them up with any real substance.
I will always respect anyone for having opposing opinions but it helps when those opinions are supported with some solid reasoning. Then there's an opportunity for decent constructive debate.
I mean saying things like "Maybe it's difficult for you to see the wood for the trees" might be an opinion you have on me, and that's fine, but it doesn't help anyone. I'm happy that you have enjoyed the chats.
I can think of several convincing and seemingly sensible reasons as to why the market has punished the stock price following the interim results. I can also counteract them with equally convincing reasons why the market has overreacted and got its judgement wrong. I always try to look at a situation from opposing ends before arriving at any conclusions. At the end of the day the market is an unpredictable playing field but usually given time and patience it will eventually value the company on its actual performance.
AWE is still in its consolidation period as it continues to transform the acquired companies and develop its connectivity products. Three major acquisitions in a short 18 month period was always going to have its challenges (some of them clearly not well anticipated by the company) and as a consequence we are seeing the inevitable price volatility. Another 12 to 24 months I expect it will be much clearer to see if they are delivering in line with their 2023 & 2025 guidance figures.
ShearClass,
In regards to your comment about capitalised development expenditure:
As the acting CFO said in the investor call the $24.7m R&D capitalised expenditure relates primarily to the staffing costs involved with the Opto-Electronic products that are being developed for 2024. It was zero the year before because they hadn't started this product development work by end of 2022. Banias labs wasn't acquired until October 2022.
This is an entirely legitmate cost to capitalise and it isn't going to repeat once the product development is completed. By this year's end you can expect this amount to easily exceed $50m to $60m in total. This product development is associated with a non-binding purchasing framework agreement with a hyperscaler where the expected minimum sales over a multi-year period will exceed $300 million. In the agreement there is a max of 2.5% share capital to vest based on product purchases of up to $700 million.
In regards to your comment about there being no headroom for more large acquisitions:
I think three major acquisitions in the space of approximately 18 months is quite enough to be going on with don't you think? The company has made it clear it has no intention nor need to make further acquisitions to accomplish its ambitious goals. Also, I've no idea what you are on about with YoY comps?
Barcap, in fairness BlueRaphus has a point.
"This company WILL FOLD", "I don't wish to commit libel which is why I'll leave at that" - will not do.
Nobody could take this seriously unless it was accompanied by a detailed support arguments.
The SP reflects that up to this point it was 'too much too soon' for AWE as I'm sure many found out to their cost. They do need to make many parties 'whole'. Maybe you managed to profit from it?
However we are where we are and today the company bears little resemblance to the one that IPO'd.
Going forward they are one very few parties in a market with VERY high barriers to entry that can deliver the type of solutions in custom silicon that are required by the data scaling challenges thrown up by current/future IT. Which is why they have managed to strike up collaborations with a number of hyper scalers (who I'm sure have their own very high 'due diligence' hurdles).
For anyone wishing to understand the company the best source of technical information was the capital markets days earlier in the year (no real registration required)
https://www.lsegissuerservices.com/spark/ALPHAWAVEIPGROUP/events/7aadd13f-2514-47e1-8281-baced5bae5e8
Generally the company is very good at explaining their solutions
https://awavesemi.com/investors/results-reports-presentations/
My negative views have always focused on the directors of this company, not the product or business model.
I don't wish to commit libel which is why I'll leave at that.
This company WILL FOLD.
Just a matter of when.
Cheers
Barcap
Weak response Barcap. You should substantiate your negative view. You become background noise if you can't back up strong headline statements with some analysis.
I think where I've lost confidence is with the worsening financial position and surprise that they have been capitalising significant cost which if had been expensed would have resulted in much lower EBITDA margin. A lot has to be taken on faith here, underpinned perhaps by the rapid growth of the end uses cases. But I don't see why they are so clearly in trouble, as you suggest.
BlueRaphus
I've always been respectful to you and clearly said I respect your views on AWE even though our views are at opposite extremes.
It's a shame you can't recipricate my friend and you are clearly rattled by the AWE performance.
We are here to "argue" sensibly about AWE not to make personal attacks.
I'll leave it at that and let the AWE sp do the talking.
Cheers
Barcap
Barcap,
Your posting history is quite something to behold! Your reputation proceeds you!
Yes you posted your views and 'feelings' on the stock on 30 Jan this year.
Merely 6 points (which you openly admit to being alleged).
Five of which are verifiably false and one which only you could know about as you state to have seen 'photos' of their lab!
You started on AWE with a buy at £3.71 on 24 Sept 2021 declaring you'd done your research and that they look real good or similar words to that effect. You said sit tight everyone don't let the crooks steal your shares!
Even as the shorting campaign was well underway you declared "The Tea Lady says it will close 250p and may get to 260p. Pause before another move up!". All of a sudden a few days after you change your tune!
and declare your short at £2.57.
Your declarations on other stocks don't look great either.
You bought Darktrace at £5.10 on 31 Nov 21. Some days later you declared "This ones quite a long haul!"
Indeed it must be a long haul as it sits at £4.16 nearly two years on!
You bought Kainos at £15.73 on 17 Jan 22 and it never rose after then. Today it sits at £11.59.
You called bottom on Ocado at £9.20 on 27 Apr 22. But the price only kept on falling and today is at £6.80.
On AWE you declared it would be 50p by April!
I didn't buy in to AWE until February this year right around its bottom point.
I have no concerns. Of course there's some risk involved here but a very low probability of them materialising.
Like your view on Darktrace (which I have no opinion on) I'm in AWE for the long haul and I am absolutely certain it will still be in existence and thriving in 2027.
Funny!
I have just re-iterated AWE from my Speculative to Bargepole watchlist.
Barcap, I would be interested in being spoon fed your detailed viewpoint on why this is a short, also it should also assist in market discovery of the right share price for this company (which will be in your interest if you are correct)
BlueRaphus
I remember doing a point by point list of my issues with this company months ago.
I'm not here to spoon feed so people need to do their own research and take a position.
I shorted 260p to 119p which was posted on here in real time and made me a new quality car.
I opened another short at 112p which has proved painful but ultimately I'll make a good profit.
Everyone to their own.
As said, time will tell but there's more to a company value than just figures and promises for the future.
Maybe it's difficult for you to see the wood for the trees.
People always cite a takeover when prices dive.
It won't happen but their technology will be used in the future but not to benefit of AWE share holders.
The adminstrators will sell it off to pay off debts.
As I said, I respect your views but maybe just open your eyes a bit.
In 2027 AWE wont exist even in takeover mode.
Cheers
Barcap