Member Info for Agricore

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.

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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

Hi SD, I've dipped my toe in, thanks for the advice.

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

Cane, I’ve posted example after example here where office REIT peers are not experiencing great drops in NAV, valuations or realisation prices. Actually a bit the opposite. You’re right on the 15% drop because the covenant is 60% LTV.

Interims are 3 weeks away so not long till there’s a commercial update.

Biffa, totally agree with your assessment.

I hold both AVCT and PDS (via NSCI) and both achieve the same outcome via different approaches (for different forms of Cancer). Both using an existing drug (Keytruda and Doxorubicin) and enhancing that, at a relatively lower risk.

Speaking of pairs. I'd also call out Sofant as another exciting NSCI holding. There's a positive read across from MWE (MTI Wireless) who also design and supply antennas. They spoke of Defence & the 5G rollout as having very positive prospects.

Someone aptly said here sometimes you're the pigeon and sometimes the statue. Today we are the statue.

When considering whether GROW will shrink further or, err, grow sometimes it's helpful to focus in on one of its investments to "dig in the dirt". I chose Graphcore - GROW's biggest loss in the last update.

This article speaks to the struggle Graphcore has had competing against the NVidia behemoth.

https://www.bloomberg.com/news/newsletters/2023-05-31/nvidia-is-soaring-ai-chip-rival-graphcore-can-barely-get-off-the-ground

This article speaks to the reason GROW wrote off 2/3 of its investment. Microsoft pulled out of a deal.

https://www.uktech.news/deep-tech/graphcore-microsoft-deal-20221010

This was the biggest single loss for GROW's NAV in the y/e 31/3/23.

There was a $78.4m write down from $115.6m to $37.2m.

On a prior $2.8bn valuation for the whole of Graphcore that puts it at -> $0.9bn now.

Yet, when NVidia has tripled this year due to excitement with AI does it make sense that an alternative is worth less? AI is a growing market so can Graphcore find niches? At what point does Graphcore's 144 patents and capabilities in supercomputer AI semiconductor chips become snapped up by someone? NVidia can't sell to China, leaving the Chinese with few options, including Graphcore. Hmmm.

Couple of other things I found interesting. Even after the write down, this is at a 1.5X ROIC. So the loss is kind of less of a gain, actually.

Also I can see it's fighting hard even in the past few weeks, on UK govt contracts (rightly so) as well as partnerships and competing services.

https://www.artificialintelligence-news.com/2023/07/27/gcore-partners-ubiops-graphcore-empower-ai-teams/

https://www.eenewseurope.com/en/graphcore-takes-on-nvidia-with-uk-ai-datacentre-offer/

https://www.ft.com/content/9a82d54d-3b21-46b1-8bd0-7d767db33d96

So when you read there was a -16% drop in NAV in GROW for FY23 there's a lot of detail which leaves room for optimism. Sometimes even in GROW's "worst" holdings.

Think also when the market believes that 780p NAV is too high and the market has "voted" today that the NAV is only worth 228p (a 71% discount). That suggests over 2 out of 3 holdings are worth ZERO. Absolutely nothing whatsoever. Let's imagine this were one. Would 144 patents for AI/super computer chips ever be worth zero? NVidia went from $100bn to $1.07tn market cap in the past 4 years. Has the market got it right that Graphcore is worth 1,118 times less than NVidia today?! ($0.9bn vs $1007bn)

And that's why there's room for optimism. Chin up and have a good weekend.

GLA

In todays Interactive Investor discount delver top 10 tent has the dubious honour of being 4th largest discount to NAV move for the week (GSF 5th). When you look at the 10 none of them are weak options - trig, SUPR, DGI9 etc all strong reporting and no smelly updates - yes it’s baffling.

Who'd have thought that with 1.1m UK net migration last year, the return to work or at least hybridisation of working practices, full employment that REITs could be suffering! Who'd have thought that with record heat, the world boiling, the US IRA and EU NZIA, and with inflation rampant that substantially inflation-protected renewables would be suffering!

In economics there is a "crowding out" principle. The "armageddon mode" to me just feels like worldwide government debt has finally crowded out private investment i.e. people buying bonds and putting money in bank accounts has sucked much money out of stock markets.

I don't understand why the BoE doesn't announce no more cuts and simply use QT to manage the tightening needed to achieve inflation reduction. Do the people at the BoE not know the Fisher Equation MV = PT!

Meanwhile as opportunities to average down at TENT present themselves I'm more than happy to oblige!

GLA

Chilting,

Thank you for sharing that simple fact. Yes, growth usually requires cash. Cash can come from fundraising. Cash can come from operations.

Cash is just cash so I question your idea that "A successful fundraise is probably the best way that an AIM company can move forward".

In a high interest environment full of despair (or do you not think that's the case?) there are many arguments that fundraising is in fact NOT the best way to move forward (unless you have to). Stabilise the business, become cash positive even if that means growing slower. There's been enough negative comment on this board about dilution! So I don't think many would agree with you (unless you use the aforementioned time machine and go back far enough).

In your reply your reasoning appears to have changed to "new funding will be needed regularly" ....because EQT has to grow faster. I think the clear consensus is EQT should grow at its current trajectory, where fundraising is not required. And that is the plan.

ST in the IC comments on the update:

https://www.investorschronicle.co.uk/ideas/2023/08/16/despite-write-downs-tmt-is-bargain-way-to-own-start-ups/

Re-iterates points I've set out previously regarding the hidden value from Backblaze and Bolt alone (53 investments effectively for free)

Chilting,

>>especially as new funding will be needed regularly.

What makes you think that?

EQT's strategy is to remain "asset light" and to earn from services/licencing.

Forecasts show EQT to turn cash flow positive from FY2024. Based on the last 2 updates they seem to be more on track to achieving that.

Perhaps you need to get in a time machine, go back in time, and post comments in a time when might have been the case?

Great news today - but is there more to come?

On the 12th July I wrote:

"So they've just decided to acquire a 14th (today, from EQT), and they have 12 more (after the 1st Limoges Métropole was awarded RNS27/03/23 for conversion by EQT). Doesn't seem unreasonable to think this alone could rapidly provide a pipeline of work. A £200m pipeline for EQT."

GLA

While a disappointing update it is interesting to examine the offenders. Are these "hopeless investments" by a hapless RSE - or something else?

Write downs at:

1. Anuvia - dead - nothing really to comment on. Move on.

2. Enuvia Biomass. It's worth looking at the scale of this business. Presumably Drax source from them powering the 5%-6% of UK power biomass. Their ability to replace metallurgical coal is particularly interesting as well as base power capability from converted coal power stations. Investor Presentation targeting margins to grow from $8MT (Q2) to $31-36/MT by Q4. If they can achieve that we may see the write down reversed?

(Source: https://s28.q4cdn.com/898203682/files/doc_financials/2023/q2/EVA-2Q23-Investor-Presentation-08-04-2023-updated-4pm.pdf)

3. Goodleap - loans impacted due to higher cost of capital - when you look at their range of improvement loans alongside higher energy costs and the IRA helping drive the cost of US solutions down (via tax credits) then I see reasons for optimism. A Forbes FinTech top 10

"GoodLeap is a marketplace for sustainable home upgrades including solar panel systems, energy-efficient windows, smart thermostats or HVAC systems. The company offers point-of-sale financing solutions in an effort to make environmentally-friendly home upgrades more accessible. GoodLeap has provided more than $20 billion in financing to about 700,000 homeowners, up from $13 billion disbursed to 380,000 homeowners one year ago.

Cofounders: Chair and CEO Hayes Barnard, 51, and Chief Revenue Officer Matt Dawson, 49, two longtime executives at SolarCity (now Tesla Energy); and Chief Risk Officer Jason Walker, 49, a veteran mortgage broker."

https://goodleap.com/homeowners/

https://goodleap.com/about-us/ (Backed by Edward Norton and Shailene Woodley)

https://www.forbes.com/sites/emilymason/2023/06/06/the-10-biggest-fintech-companies-in-america-2023/

Not a write down but one I've had my eye on steadily going up in price for some months.

Hammerhead - doubled from lows - its investor presentation suggests 30 years inventory from its assets:

Investor presentation: https://ir.hhres.com/static-files/e463159c-5a38-41eb-8178-7685d6a4991d

Conclusion: A lot of detail to chew through and still more to go. But despite a step back there appears to be grounds for optimism and there remains a substantial discount to NAV insulating investors, and tailwinds why their portfolio should do well going forwards.

To put an EV/EBITDA of 1.5 in context imagine investing £1 in BELL add debt (per share) minus cash (per share) gives you the “EV” or enterprise value - how much each share is worth stripped of debt and cash.

EBITDA is earnings before interest, depreciation and tax so gross profit minus operating costs (overheads).

So 1.5 means you earn 66p per pound each year in 16 months time (minus deductions).

Hence it being jaw dropping.

Usually when something earns so much, then people want a piece of the action hence the share price goes up. An EV/EBITDA of 5-10 would be reasonable and valuations are usually forward looking not backwards looking suggesting BELL could quite easily return to its 90p origin and a forward 5x would equate to 140p/share.

GLA

As well as BSFA another one worth a look is FIPP who have Nandi Proteins in their portfolio. On over 50% discount to NAV.

People seem to be getting more than a little confused as to what the current NAV and NAV per share is.

Current NAV (unaudited) is $157.12m or £123.42m

There are 85.88m shares. So NAV per share is £1.44 (1.437)

Comprising:

+ $63.84m NAV 31/12/22

+ $84.78m B Series UpRound of Waste Fuel RNS 6/7/23

+ $3.9m Enphys Uplift to NAV via Enphys Mgt Co to 30% ownership RNS 7/8/23

+ $4.6m Carbon Engineering Uplift to NAV due to Sale to Occidental RNS 16/08/23

Today ended on an bid/ask of 25p/27p. 27p is now "only" an 81.2% discount to NAV. (It was 84.3% discount a few days ago)

Where in the past 41 days, 3 out of 3 times that NAV has proven to be TOO LOW. Why? NAV or Net Asset Value uses fair value methodologies but in the absence of anything else an investment will be on the books at its book value (its buy price). If you sell an investment for more than you bought it then you recognise the gain. If you have a funding round (like WasteFuel did) you can recognise the gain. Otherwise, generally, you can't recognise the gain.

You can read around the subject, and look at progress, look at key appointments, listen to commentary (2Phevs has recently done some excellent work in this area), and ultimately trust the skill/capability/honesty of the management team. Or not.

There's a famous saying by Warren Buffett - I have it on my wall - only when the tide goes out do you discover who's been swimming naked.

But, equally, you also discover who's clothed. And 3 out of 3 times the tide's revealed hidden value... swimming trunks you might say.

I'd very glad I doubled down on the recent pull back, and have averaged up further today. Just because BP Ventures and Maersk have thrown in $10m doesn't mean that's it in terms of NAV accretion for WasteFuel. Given the number of methanol powered ships and converted to methanol ships coming on stream there will be a Series C funding round to put some serious money behind expanding Waste Fuel. A funding round which I think will be in large 9 figures if not 10. Perhaps with some Middle East state's involvement. Why? It has to be to meet their 2030 targets/ambitions and shipping uses 5% of global oil (5m barrels/day). At today's $81 a barrel that's $405m spent on fuel. PER DAY! Investing a day's worth of fuel in the scale of things is not that inconceivable.

Source:

https://cen.acs.org/environment/greenhouse-gases/shipping-industry-looks-green-fuels/100/i8

The prospects of a future EV/EVITDA of 1.5 based on how many units BELL is selling is exciting.

But I have 1 more thought. Show me where the value of BELL's IP is in that valuation?

The answer is NOWHERE!

"The Company is already working on the next-generation NOMAD app that will alert patients when their blood oxygen saturation level has varied beyond parameters set by their doctor, which is expected to help patients better monitor their conditions, but also improve the efficiency of the device by delivering supplemental oxygen as needed."

This is the next aspect which will prove a game changer. The logical progression from mastering this "telehealth" capability in Oxygen Supply would be to roll it out to CPAP machines, Diabetes monitors, Pacemakers and all manner of health devices.

If BELL provide some form of subscription model for this then the revenues are not just about units sold. You can't just think of this company in those terms. It has an opportunity to generate valuable recurring revenues and to licence its technology. When you look at the wider subscrption and licencing opportunities (which Bob actually alludes to if you listen to his last Pox Markets interview with Paul) then you are getting this in the price for FREE.

Remember Apple made lots of money from selling lots of iPhones. But how valuable was the App Store?

(the same prospect exists for LUCY too)

GLA

The prospects of a future EV/EVITDA of 1.5 based on how many units are we selling is exciting.

But I have 1 more thought. Show me where the value of BELL's IP is in that valuation?

The answer is NOWHERE!

"The Company is already working on the next-generation NOMAD app that will alert patients when their blood oxygen saturation level has varied beyond parameters set by their doctor, which is expected to help patients better monitor their conditions, but also improve the efficiency of the device by delivering supplemental oxygen as needed."

This is the next aspect which will prove a game changer. The logical progression from mastering this "telehealth" capability in Oxygen Supply would be to roll it out to CPAP machines, Diabetes monitors, Pacemakers and all manner of health devices.

If BELL provide some form of subscription model for this then the revenues are not just about units sold. You can't just think of this company in those terms. It has an opportunity to generate valuable recurring revenues and to licence its technology. When you look at the wider subscrption and licencing opportunities (which Bob actually alludes to if you listen to his last Pox Markets interview with Paul) then you are getting this in the price for FREE.

Remember Apple made lots of money from selling lots of iPhones. But how valuable was the App Store?