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As I stated below DB … so correct. Bear in mind Arqiva pulled it’s IPO in 2017, and sold off £2 bn of assets in 2019 or so to Cellnet to pay off shareholder loans etc.
Arqiva makes its money from broadcasting on decline but is growing its IoT business.
I’m very rusty on broadcasting, but I use broadcast to save IP bandwidth at home, while broadcast frequencies are relatively low hence large rooftop ariels from memory so I’m not sure if these frequencies will be able to switch over to streaming on hand held devices … someone more up to speed can fill in whether feasible … but either way I think broadcasting will stay up to 2040 at leadt.
To me this suggests these reserves are explicitly tied to equity, the issue is how they are realised into cash in any form - and into DGi9's share price. Conceivably, this requires an IPO if we cannot restructure the company from a largest shareholder but minority position and take distributions. Penny for any other Arquiva large shareholder's thoughts who might want an IPO to realise some cash...and when?!
Arqiva Limited June 2023 results:
"Dividends and transfers to reserves
The Directors’ of the Company have not recommended a dividend in the year (2022: nil).
The profit for the year of £342.0m (2022: profit of £246.8m) was transferred to reserves."
Retained earnings tied to equity in Arqiva Limited:
Retained earnings £3,180.8 Million.
for which an IOU as a shareholder loan note is issued to equity holders that DGI9 has around 50% of.
There are no distributions of cash from Arqiva to DGI9. At best, one can think that DGI9 thought it could change the historical flow of revenues within Arqiva but even if so, while DGI9 doesn’t pay off at least the VLN interest cash flows to DGI9 are zero.
Realising value in Arqiva means an IPO or restructure of the business organisation as far as I can see … andvto grab at the value means working out how the reserves are held in Arqiva limited, that are tied to equity.
Looking for some clarity on how the distributions work at Arquiva - if we can sell another asset to get access to the dividends, do we have a 'right' to them if we have a minority share? Does anyone have any idea what they could be, given the inflation swap payment for this year could be 75% less than last year and profitability was 200m+ last year (our share 100M). I understand the asset is private and somewhat 'murky', but it seems insane to be valuing an asset at ~5x profit or 10x cash divis at div cover =2. Quite frankly id be keen to keep it, develop it and float it, not sell it for a song for some PE company to do...Very keen to hear your tuppence!
The challenge lies with unlocking value in Arqiva.
A very different situation now to Verne sale, we’re no longer as distressed
So NAV 84p a share 70% haircut for selling costs as per Verne Global minus RCF gives me 50p a share …. Works for me.
Quite a few funds are selling according to FT .... if it takes 2 years to realize gains, that's cash tied up for some funds that they may want to work elsewhere ... there are enough UK stocks down 50% the past two years.
For me, the deal breaker to hold revolves around what the VLN bought - a 50% stake in the shaholder loans is massive. Shareholder loans come before equity in the case of bankruptcy but after bank loans. Arqiva Limited has £3 bn in reserves as operasting profits squirreled away each year.
The VLN has to be paid off in a few years so current assets even on firesale will pay off the RCF and VLN ... where I would expect an IPO of Arqiva to be worth around £0.80 - £1 a share for DGI9 holders with an IPO buying out DGI9 equity stake for £350 million and the 50% interest in shareholder loans.
Enjoy.
Who the hell is selling. 30p minimum now
I've seen this comment floating around now:
"When D9 acquired its 51.76% economic interest in Arqiva, it acquired 51.76% of these shareholder loan notes."
So the £169 Million VLN was used to buy out CPP's shareholder loan notes interest in Arqiva. That's about 10p in the £ according to my sums.
I wonder how long it will take for the market to wake up here?
Arqiva does indeed generate £180 m plus per year operating profit ... but one has to look deeply into the accounts of the subsiduary companies and bear in mind that Arqiva is a private business. It's method of accounting is to lock in operating profits each year into reserves and book a shareholder credit or loan as a result - so there is no direct cash flow towards DGI9 that helps its bottom line.
The above said, Arqiva Limited as opposed to Arqiva Global Limited as the parent company has some £3.18 Billion squirreled away in reserves as equity so the assets of Arqiva itself are huge.
Don't forget that Arqiva Global has looked to IPO with a market cap of £6.5 bn in 2017. It sold of a chunk of transmission capabilities to Cellnet in 2019 to pay off some of the shareholder loans, but is still looking to IPO and must itself be valued as a £2 bn business so a sizeable return for DGI9 if/when this happens.
The market doesn't like the debt tied with the holding company of Arqiva but much of this debt is a shareholder loan of operating profits so not real debt in the sense of the word to a third part like a bank.
There is no question to my mind that DGI9 should never have bought Arqiva - but it did ... and if it can unlock the value in Arqiva DGI9 shareholders will be amply rewarded in my view.
The answer your question Geldautomat, ”Does that mean $135m of the $575m sale is held until December 2026 depending on performance of Verne as a business?" is sort of yes. It's based on performance during 2026 so I would have thought the payment would be after December 2026, maybe after the annual report. As Verne is not a publically quoted company I think they have quite a bit of flexibility in when this is completed. I think the earliest the payment will be made would be mid 2027. It's a long-term hold.
Arqiva is still generating revenue and if I remember correctly £180m per year, so plenty of money to pay off the RCF.
The "market" presumably doesn't like the £80 m of the RCF left lying around - while it will also be trying to wash out the people that bought below 20p. Selling costs for Verne were expensive so DGI needs to get rid of another £100m or so of assets to be debt free so two of the smaller holdings or aqua comms leaving it cash positive.
There is what ... 50p a share locked up in Aquiva say 40p with a fire sale and a few add ons so 50p a share seems reasonable.
I still have my discounted sale values returning 50p+ a share (absolute worst case scenario). Chances are high asset sales return much more, but that's still 100% gain in a year. Verne sale showed how quickly deals can be done with some motivation. Let's see what the next offer for an asset is
I’m very trigger happy … but not even I was prepared to sell at 25p this morning.
Around 10p a share earn out if Verne hits its targets … was my understanding. It’ll pay management fees if nothing else going forwards. Was always in the small print.
Filled my boots at 23-23.5p this morning.
Ok, so I don't quite get this bit...
"A potential earn-out payment of up to US$135 million (approximately £106 million*), which is payable subject to Verne Global achieving run-rate EBITDA targets for the financial year ending December 2026 (the "Performance Target"). The total earn-out will be payable if 100% of the Performance Target is met and will be reduced on a sliding scale with no earn-out being payable if Verne Global does not achieve 80% of the Performance Target. This target is as set in the business plan provided to all potential purchasers at the time of the sale process."
Does that mean $135m of the $575m sale is held until December 2026 depending on performance of Verne as a business? So we've reduced the RCF to $80m after sale proceeds and will be able to pay the rest 'IF' Verne performs as expected? I guess the SP will react next to the value of the next asset sale in relation to it's NAV. If only 20% lower we might see some real momentum upwards
Sold!
Highly possible and probable
Has Verne just been signed?
That's got to be II money. Surely there a company who'd prefer to own all these assets at a discount
252000 just got taken out on level II
Hotting up …
Great news, do you have a lnk to the article?