Thordon,
in manufacturing Tier 1 means it's a sub assembly provider e.g. Bosch. Not General Motors.
I don't really get your VHS/Betamax analogy since Guident has patents around Guident Springs and no one else has developed the same technology or is working towards it - to our knowledge. Can you please share details of which competing technology you are thinking of here?
Ditto with Microsalt. It's a patented process to produce micron-sized salt particles and no one else is doing the same (other than those using Potassium Chloride instead of Sodium Chloride which is lower Sodium - unsurprisingly - but tastes dreadful. Have you ever tried it? If you do, you'll wish you didn't.
>>"manufactures take time to adapt so maybe years off from mass sales."
What adaptation do you think is needed?! I disagree that any adaptation would be required - try watching a few episodes of "How's it made" and you'll realise that dispensers in food manufacturing can take a feed of normal salt or microsalt - no problem. No adaptation required. The only reason they're not (yet) using Microsalt is that it's too small and it's off their radar. Besides Microsalt couldn't produce in volumes large enough for any major food producer right now. But it'll come in time. Sodium reduction is a $1.6bn/year category globally where Microsalt has a clear USP. Expanding Microsalt globally will be the priority. Snack foods and ready meals are enormous markets, but one for the future. However (all) Salt is a $32.6bn/year category (bizarrely growing 5.3% CAGR to $48bn by 2030 (what?!)). Just like the UK government taxes ciggies and give away free vapes, you can imagine a few nanny states in the future taxing salt and supporting microsalt. After all, salt is without doubt a huge killer (Source: https://sciencenorway.no/cholesterol-consumers-forskningno/salt-is-worse-than-tobacco/1393166).
You say you need to see breakeven, but in investing, by the time you can smell the coffee you'll be paying starbucks prices. Right now what's on offer are some coffee beans with exciting potential! Trust your nose to sniff out the BS or the bargain!
GLA
Another read across to Grow to consider would be Herald. I think Katie Potts, 35 years experience and 2200% ROIC, makes a number of excellent points generally but, again, another example of how venture capital rebounded strongly in 07-09 and in 2000-2002 - well worth a listen: https://www.investorschronicle.co.uk/podcasts/2023/08/22/ic-interviews-fund-manager-katie-potts/
Thordon, doesn’t just apply to EVs - any vehicle with start/stop can benefit from Guident Springs including ICE vehicles. Vehicles can be bikes etc as well as cars too. See my previous analysis on the market size.
@Jupitar - and when I speak of a "lithium shortage" I mean a shortage to the Western World. Who controls 80% of lithium refining and battery production. Not the West. Where's EMH located? The West. A few dozen miles from Bavaria's and Czechia's EV production. Similar story with HAS. Who controls rare earths? Over 85% China. Where's HAS located? The West (Australia is considered the West). EG1 is there too. Sonora is proximate to US/Mexican EV production. Given the geopolitical tensions assets in friendly jurisdictions usually come at a premium - and not at a 98% discount. The "friendly premium" belongs in my upsides list.
@Bannor - on my "upside" you're right (well spotted) - WHI's number are "project" so "At the full 20% reduction, this increases our NPV10 for the project as envisaged currently by EMH of $149m to $1,217m using our new long-term lithium carbonate price of $15,000/t, and by $300m to $3,655m for our expanded case (whereby EMH doubles production from year 6)." That would imply a 6.5% of EMH @ US$3.6bn NPV x 49% is £90.25m or 49.88p a share.
@Bannor but my base case is taking into account the 49% split i.e. EMH 6.5% holding worth £4.94m market price (6.5% @ US$1.2bn NPV to EMH and KDNC's share of that would be £61.42m or 33.94p/share).
@EV_bull - Evergreen is listed on the ASX. On Friday's market price the 8.7% @ of a market cap of A$14.06m @ A$0.26 per share was definitely worth £0.69m not £2.1m. However, whilst there aren't any OPTIONS, further reading shows there's a further A$3.47m of shares due to KDNC on completion of certain performance milestones. I'd missed that in my "upsides" - thank you. This would have the effect of diluting existing EG1 shareholders by 24.6% and would increase KDNC's holding from 8.7% to 33.3%. EG1 is A$14.08m market cap so a third would be worth £2.37m (£1.68m more).... at today's prices. Going back to the NPV of £570m that's 33% would be worth £188.1m - or £1.04/share to KDNC holders.
@ghin - As for the sharpness of tools, I think the deals that have been struck with HAS and EG1 have been smart. We now have 3 out of 5 publicly listed holdings. Amapa and Sonora for 3p/share at a 98% discount is progress in my book. The progress made with Amapa, whilst feeling slow, has been solid. The purchase of Amapa was clever. Anglo walked away from a billion dollar asset. What fools. We have the $10m funding negotiated option for the DFS for Amapa, or a JV will be announced. That's clever too. What sharpness are you expecting exactly?
@jupitar - are you shorting - or just here to try to be original? Not ever heard that Fools & Horses line used like that before - well done you!
@jupitar - assuming behind your world class humour you actually have an opinion on the markets, do you not see everywhere you look that microcaps have been smacked down? Name me 1 lithium/rare earth miner going great guns in the current environment? SAV, ALL, MKA, PRE, RBW - no one is doing well. All down by large percentages too. Yet we have this enormous tailwind of a lithium shortage. What are the trends for electric vehicles and energy storage? Trading economics shows me current market price for Lithium Carbonate is $30k/tonne - hugely above the NPV calculations for EMH. So while your 80% drop for KDNC in 10 years is factual, why exactly do you think past performance is predictive of KDNC's future performance?.... In selecting Investments, the future is what matters after all.
GLA
Splitting out the public and private elements of KDNC and following some (further) price drops where are we?
(all valuations as at 25th Aug 2023)
The market cap of KDNC is £12.85m
PUBLIC
EMH 6.5% holding worth £4.94m (6.5% @ US$1.2bn NPV is £61.42m).
EG1 8.7% holding worth £0.69m (8.7% @ £570m NPV is £49.59m).
HAS 1.9% holding worth £1.22m (1.9% @ A$1bn NPV is worth £10m)
Total 3.9p/share. (or 66.9p at their NPV)
So current market prices are on a 94.2% discount to their NPVs (But see note 5 below).
PRIVATE
Sonora worth ? (NPV Base case is £7m, NPV is £23m)
Amapa worth ? (NPV Base case is £253m, based on 33% @ unrisked $949m NPV)
The 2 private assets marked "?" are in the price for £6m or 3.3p share. (Or £1.53 at NPV)
So £6m for £260m is on a 97.7% discount to their NPVs.
Are there other upsides?
1. The NPVs are at conservative commodity price estimates. For example EMH's PFS put Lithium Hydroxide at US$10,000/tonne and Carbonate at $12,000/tonne. As at 27th August Lithium Carbonate is $30k/tonne (2.4X)
2. Amapa iron ore reserves. Nearby "Great Panther" areas could contain further orebodies.
3. 94.2% discount for HAS is unfair? HAS is 18 months from 1st pour and 2 years from cashflow positive - that £10m value seems fairly nailed on? (Source: https://www.investi.com.au/api/announcements/has/84c09d44-461.pdf)
4. EMH has its DFS and FID in Q4 2023. It has backing from both CEZ and the EBRD.
5. EMH simplified flowsheet WHI said "At the full 20% reduction, this increases our NPV10 for the project as envisaged currently by EMH of $149m to $1,217m using our new long-term lithium carbonate price of $15,000/t, and by $300m to $3,655m for our expanded case (whereby EMH doubles production from year 6)." That would imply a 6.5% of EMH @ US$3.6bn NPV is £184.25m or £1.02 a share.
So public holdings would be on a 97.1% discount to their NPVs. (3.9p vs £1.35)
Conclusions:
1. HAS is far further advanced than perhaps people realise, with strong offtake counterparties, finance, and expansion plans for downstream processing in Estonia. Rare earths are strategically important.
2. EMH isn't so far behind. Lithium is strategically important.
3. Even considering risk, and ignoring publicly listed holdings upsides, the 97%+ discount on Amapa/Sonora makes no sense.
GLA
Even through the 2007 to 2009 recession median IRR for PE was 9%.
In 2009.. the strongest median returns of any year either immediately prior to or after the recession. Top quartile returns rose to almost 50%, underlining the strength of the deals made that year
(Source: https://www.dealedge.com/insights/private-equity-during-recession-part1/)
Steph, it's also true that there's an obsession with rising rates being the harbringer of doom - including doom for FTSE250 constituent GROW. Is it though? This podcast offers a contrary view:
(Source; https://www.bain.com/insights/upward-and-onward-in-an-uncertain-environment-bain-capital-steve-pagliuca-podcast/)
“You have to remember, in your career and my career, probably 80% of that time we had T-bills at between 4.5% and 5.5%,” Steve explained to me on the latest episode of Dry Powder. “No one was saying that was horrible, and no one was saying that the private equity industry is dead. In fact, it boomed.”
Boom.
there are numerous peer group valuations which have not moved anywhere like negative 15% during 2023 or particularly q2. let's recap the recent valuation updates across other reits: abrdn property income trust + 0.4%, aewu +0.7%, balanced commercial -1.1%, custodian -0.5%, schroder reit -0.1%, uk comm property reit +0.6%. so some valuations are upwards. let's not forget, too, that recent realisations for rgl and its peers have also generally been above valuation too. do valuers not take recent realisation prices into account?
(source: figure 1 in marten & co's broker note @ https://*********************/companies/uk/reits-diversified/abrdn-property-income-trust-limited/research/quoteddata/abrdn-property-income-trust-ready-and-waiting/21_79551f12-70a7-43ed-b9de-ed014c4d2bb3)
let's not forget, too, that stephen inglis has made a publicly stated belief that valuations are going up not down. appreciate he's talking his own book - but if i were him and i secretly knew that was cobblers i think i would be much more circumspect with my language to retain more credibility if/when i go cap in hand to investors or financeers for a bail out due to a covenant breach i know is coming.
i notice, too, that the analysts following rgl are 4 strong buy 6 buy 1 hold 0 sell 0 strong sell. average 12m target 64.6p (+50%)
(source: https://fintel.io/sfo/gb/rgl)
the concern is in a fortnight's time at the next update, a 15%+ drop that breaches covenants could happen and crash the share price despite every analyst following rgl thinking it won't. nor are such dramatic downward valuations happening to any uk reit peer (including those in the office rental space).
so i'm just not seeing the evidence for this valuation drop.
You_having_a(nother)_laugh,
1/ When the news is focused on Jackson Hole and Jay Powell's speech (again) I don't think a 0.1% movement in Nvidia today is indicative of anything much, is it?
2/ I read all your factoids so first the BoE statement suggests the hammer is coming down on construction and wholesale/retail - fail to see what relevance that has to GROW (Source: https://www.cips.org/supply-management/news/2023/august/percentage-of-firms-at-risk-of-default-predicted-to-hit-50-by-end-of-2023/). You can read doom every day in the news so a little more of the same doesn't predict much. If the creative winds of destruction clean out some of the zombie businesses that were life supported through Covid that's a good thing in my opinion. I speak to many businesses daily and read their accounts - there's many growing, prospering SME businesses.
3/ When the FTSE250 is on a PE of 12 do you really think it would move to a PE of 9, if (when) the S&P moves from its current PE of 23 to 18? I find that extremely hard to believe. Recent correlation between the pair has been either very weak or negative. Within the FTSE250, if GROW were proportionately affected that would put us at £1.80 and on a discount to NAV of 85%. Really? C'mon!
4/ And now for your "SMH ETF for semis had a negative macd weekly crossing 7/8 and each similar has led to decent falls afterwards. A strong signal of the wider economy."
So you're making a new prediction we are heading for a terrible recession because a Semiconductor ETF gave you a technical signal? Technical analysis today for SMH shows a mix of bearish and bullish signals for 24th/25th August, so you're picking a bearish signal to provide some generalisation? You also suggest that SMH is a predictor/portent for the future path of the wider economy and couldn't find anything to substantiate this either - if I compare SMH against VMID for example over 10 years there's no predictive quality to SMH whatsoever - so where's your evidence this has somehow suddenly become a predictor in August 2023?
I've also gone back to past recessionary periods to consider what happened to private equity in difficult periods like 1999, or in 2009. The evidence is - once again - encouraging for GROW.
(Source: https://www.nb.com/en/global/insights/the-historical-impact-of-economic-downturns-on-private-equity)
Clearly you've convinced yourself as to some general impending doom based on your factoids, as much as I've convinced myself to the resilience, strength and fundamental value on offer at GROW's current silly prices. This conversation is now at an end.
And, yes, let's see.
Nice 5% gain on the week. I've been pondering my investment here and what have I missed? But actually the more I think on it the more I realise this is a high yielding defensive play with strong macro tailwinds and diversified execution risk, along with capacity investments which will steadily fill simply due to simple truths like: "Only 10% of enterprise IT spending has moved to the cloud with $600 billion a year still to move"
Have a good BH w/end all
Could the acquisition be one of these?: https://www.mordorintelligence.com/industry-reports/brazil-biofuel-market
What I found really interesting is that biofuels in Brazil are neutral to gasoline at $50-$60 crude. In other words biofuels at today's $70+ are at an advantage (let alone the tax benefits/penalties - which skew this further)
https://www.iea.org/articles/how-competitive-is-biofuel-production-in-brazil-and-the-united-states
IX is down presumably because of the longer completion date. But it feels like a positive to me that we now know there's a specific deal in the making.
Great results for backblaze in Q2 - it’s up 20% today on the news
https://ir.backblaze.com/static-files/ae2a113b-92d3-4ef8-8b3e-fb07f56666a7
You_having_a_lau-ha-ha-ha-ha-gh,
Problem is your past predictions on GROW leave something to be desired. For example 6 months ago you stated:
"Now we have a heavy US recession about to land within 6-9 months. Earnings hit, e part if p/e gets hit, p/e peaks for short while before going below historical mean (p falls) and then returns to normal. Grow dodge that? I think not."
Perhaps it's the mistypings but I can't follow any logic to what you are trying to say in that "prediction". What is an "e Part"?! For the bit I can understand, you predicted a recession. Yet here we are, no recession in the US, nor even the UK. None about to land. Instead record earnings from NVidia but also many other tech names this evening. A robust FY23 performance from GROW, where the cash position wasn't as desperately short as you also predicted. And while, yes, Graphcore's fair value reduced, my point remains that the underlying IP is not of a 1000+ times magnitude less valuable. Even you concede it has value in your previous posts!
You also got it wrong on other holdings too. ANX for example, you repeatedly predicted the debt situation was hopeless yet here we are, their H1 results this week show debt reduced by a (very) good chunk, and a positive H2 forecast.
Perhaps you'll eventually be right and we'll fall into a terrible world recession and GROW will drop further (presumably the aim of your continuous wall of negativity?). Yet it's not there in many data points I read. In fact quite the opposite. If innovation can solve problems, if AI can boost productivity via co-piloting and other ways, then the economy can reach sunlit uplands and GROW will grow. It's happened before. If realisations *continue* to occur at a price higher than the 80% discount to NAV the market believes**, then the market has got the current price of GROW wrong. Bear in mind that the H2 FY23 realisations were at mark-to-market so a 0% discount to NAV (they were publicly traded Uipath & Trustpilot as well as syndication of fund of funds)
You ask for me not to make you laugh, but your past predictions have, in fact, turned out to be a bit of a laugh.
Let's see who squeezes out the last laugh here. Going short at £2.33, if that's the game behind your negativity, is no laughing matter.
** Source for the 80% discount = £7.80 reported NAV @ an average 35% discount imposed by Molten (Source: page 14 of Molten FY23 presentation, average discount taken) is £12.00 NAV. £2.32/£12 is a current 80.66% discount to NAV.
Graphcore is worth 70% less than its fair value...... Meanwhile in other news this evening, a similar company is worth more than something:
SANTA CLARA, Calif., Aug. 23, 2023 (GLOBE NEWSWIRE) -- NVIDIA (NASDAQ: NVDA) today reported revenue for the second quarter ended July 30, 2023, of $13.51 billion, up 101% from a year ago and up 88% from the previous quarter.
GAAP earnings per diluted share for the quarter were $2.48, up 854% from a year ago and up 202% from the previous quarter. Non-GAAP earnings per diluted share were $2.70, up 429% from a year ago and up 148% from the previous quarter.
“A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI,” said Jensen Huang, founder and CEO of NVIDIA.
-
If Huang is correct (and clearly Nvidia appears to be doing something right) then that's also a market opportunity for the likes of Graphcore isn't it?
I daresay there are plenty of other GROW holdings with a similar story?
GLA
David Stephenson is bullish on DGI9:
"DGI9 post the Aqiva deal has its financial challenges but the core businesses are churning out cash and full dividend cover within the next year or so looks completely achievable. To repeat the point (it hasn't) gone ex-growth and there is every possibility that dividend payouts could increase.
As for valuations... discount rates look fairly sensible and I would repeat another earlier point – most listed businesses in the towerco and data centre space trade at far, far higher valuations. The German listed Vodafone towers business named Vantage Towers – where private equity giant KKR has bought a huge slug of the business – is trading at over 42 times its forecast earnings.
(Source: https://citywire.com/investment-trust-insider/news/david-stevenson-digital-funds-are-too-deep-in-the-dog-house/a2413348?re=107401&refea=1125685)
Arga, what's cooking?
It was a takeover target article which made me look at DGI9. This was covered by broker Peel Hunt, who saw it as having attractive assets: https://www.ii.co.uk/analysis-commentary/eight-investment-trusts-could-be-takeover-targets-ii528755
Reading more, I was concerned to read about Jefferies downgrade of some 6 months ago and the negative view held by The Trots: "am now of the view that (DGI9) perhaps it is best avoided. I perused the 2022 accounts this morning and came away distinctly unsettled."
Piling on the negativity I noted various negatives:
1/ the Investment Manager who left,
2/ the uncovered dividend,
3/ the apparent "black hole" in debt,
4/ the growth discount,
5/ Arqiva inflation-linked swaps and a
6/ dodgy NAV.
I hope to briefly cover these points and why I chose to invest here.
1. There is a new Investment Mgr - as of 13th June '23 - ex Vodafone - that "deflator" is dealt with (and dare I say the replacement looks more credible than the original!)
2. The uncovered dividend. This is purely a timing issue. There are 3 projects which will bring cash flows which will more than cover dividends and costs. From 0.4X to 1.6X comprising Verne Ramp Up, the Subsea Cable commissions H2 2024, and Arqiva growth.
3. The black hole is debt yet this has been refinanced on 5 year terms at fixed rates as of 5th July '23.
4. The growth discount. If people want to risk their money on fixed rate bonds crack on. I am more comfortable sitting on *INFLATION-LINKED* income, with *CAPITAL APPRECIATION*. Neither of these things can occur with bonds. Discount it all you like, but what I know as an investor is that what counts is controlling for the downside risk (infrastructure is a "real" asset with index-linked returns) and what counts is lifetime CASH. And DGI9 seems capable of generating plenty of it from next year - and has enough cash to keep paying dividends until then.
5. Arqiva's swaps have been collared. The gist of this is that there's a limit to how much high inflation can hurt DGI9 over the next 4 years. Bear in mind, too, that falling inflation reduces the negative affect of the swaps in any case. I'm of a mind that inflation could surge again, so the collaring is a positive.
6. Dodgy NAV. Well the syndication of an asset is a great move here and will "prove" the value of the NAV. That's in progress and should finalise in this quarter. A more normal discount rate should be 20% maximum so I see a 6o% upside from here (at 51.4p) just to return to that level.
Therefore the 6 concerns appear to be addressed or at least in hand. Meanwhile the yield is an attractive 12% where there appears to be grounds to think that a 50%-60% growth in dividends is possible (the 1.6X cover) and/or buy backs, or reducing debt.
Given I have zero telecoms and infrastructure this provides some diversification for me too.
GLA
Interims confirm the badly worded RNS and net cash from VW was indeed net profit. Lots of details today but this appears to be developing according to my modelling and wh Ireland had to revised theirs as they’d not appreciated the progress ANX is making. Still nothing in the price for growth and for the Mercedes claim
Gla