Member Info for Agricore

Sorry, I meant the market price would be at an estimated 44% discount to NAV!

Re-reading the annual report and their recent presentation I almost fell off my chair reading the 30% holding in Recycling Technologies Ltd could actually be worth a whole lot more. There was a planned and cancelled IPO at a premoney of £80m. If that can be replicated that doubles the NAV of NSCI. 30% would rerate the £0.5m book value to be worth £24m.

Looking at companies house records the business had £9.7m of assets, which were written down and sold by the insolvency practioner for just £1.1m. So I would guess that the £0.5m value by NSCI includes a contribution of £170k of cash into that business along with £0.33m for the 30%.

You can read this for yourself here: https://find-and-update.company-information.service.gov.uk/company/07528795/filing-history?page=1

Or put another way, the current price could actually be an astonishing 70% discount to NAV (NAV £51.9m; market price £16.1m) based solely on some fairly reasonable assumptions - and based on progress in just a few of the holdings.

GLA

Don't really understand the concern here since NSCI holds 1.34m shares in PDS which is NASDAQ listed and at current price of $9.42/share translates to £10.1m of liquidity - if needed - and as they point out on page 23 of the annual report.

Also not inconceivable that some of its existing holdings could be syndicated to its managed capital via Martlet or via EMV.

Of course £10.1m is a £4.6m movement down on NSCI's NAV as at 31/12/23. So net assets are £20.6m or 25% above the current market price. But taking into account what we know around progress and funding rounds at Glycotest, Sofant, Qbot, EMV, a net assets price at or above £24m+ appears a reasonable estimate. If PDS reverts to it's $13.2 price point. That reaches £28.6m+ net assets..... or 44% discount to the current market price.

Certainly all appears to be heading in the right direction, and happy to hold here.

GLA

I've just finished reading SP Angel's report on TEK. No great insights but it spurred me to look at the NAV valuations of the past few years.

I offer a perspective for those struggling with the current malaise in the markets and barrage of negativity. Consider this. Have any of the portfolio companies gone backwards in terms of their progress? Have they failed to launch their product? Have they lost customers? Have they concluded their technology can't "improve peoples' quality of life?" (i.e. the TEK mission statement). Has what's changed simply been the market's appetite for microcaps and growth co's?

No, it's fair to say substantial macro factors of covid/supply chain/interest rate rises/and an inflation burst have smashed into TEK. Some raises/dilution are as a result. But are those still headwinds? Arguably all 4 are receding or gone. So is the night darkest before the dawn?

There's been some seriously disappointed investors including some seemingly "get rich quick" schemers bemoaning their special dividend. Bitterly holding on to losses here. It's also true that TEK have diluted several times including 20% dilution in 2023. We have gone from 150m shares to 180m recently.

Poor sentiment and macro headwinds obscure the technical and commercial success of the TEK portfolio. And poor sentiment and the (lack of) market appetite reflects in its market pricing right now.

But, as a fellow long-term holder (LTH) consider that we are watching 4 progressive portfolio companies who are navigating challenges of macro factors, growth and cash flow then would it be a reasonable approach to consider for a moment a valuation based on the highest valuation point for each of the 4 businesses?:

For BELL this was Nov-21 and was $22.7m.

For Guident this was May-21 and was $22m.

For LUCY this was May-22 and was $27m.

For Microsalt this is Dec-22 and $16.5m.

I arrive at $78.6m which equates to $0.44 or £0.357 a share. (This includes dilution and is based on 180m shares)

Tek's cash is currently at ~$3m so 1.7p a share cash. So 37.4p/share.

So today's price is at a 66% discount to theoretical NAV. Today. 37.4p a share even before we consider growth and future potential.

IFRS13 forces TEK to revalue things down but we are not witnessing a shrinking or regressive opportunity. Using these data points provides, an interesting perspective why there's *substantial* upside here.

Each market - AV, eyewear, sodium reduction and pulmonary disorders are all substantial, and growing fast. Plus portfolio company offers a market leading way in each market to "improve peoples' quality of life".

I previously set out how TEK could be valued at 18p a share on a liquidate basis. Now I set out how 37.5p on a reasonable/optimistic TODAY basis. But even more on an optimistic tomorrow basis. I repeat my assertion that 12-13p bid-ask is simply too low.

GLA

Nth, I'd have no wish for DEC to initiate a buy back.

This is the DEC presentation from their most recent acquisition, Tanos.

https://d1io3yog0oux5.cloudfront.net/_4f580065c9f9acf0ccf37db791dc031c/dgoc/db/562/4590/pdf/DEC+Central+Region+Acquisition.pdf

Look for the NPV10 values (Net present value of cash discounted by a compounded annual rate of 10%). This is the future value if we assume the future value of any earnings drop by 10% every year (i.e. quite a harsh metric)

Do you see it on page 4?

Let me help you. DEC bought Tanos for $250m. The acquisition has a NPV10 of $589m - including $107m of additional EBITDA in the coming year (i.e. nearly half the initial outlay).

A buy back would not achieve those kinds of increase to returns - and therefore accretion to NAV. A buy back wouldn't produce all the synergies DEC list on page 6. I find it incredible that I was able to top up at 82.7p this afternoon. Rusty Hudson's dealmaking expertise is superb. The operational ubiquity they achieve is impressive. Their progress (albeit from a poor start) on ESG and specifically methane emissions is good. People speak to "risk". But I'm reminded that these have a solid track record, solid profitability, including substantial hedges for the next 8 years, and are buying producing assets for a growing market of natural gas - replacing coal, increasing international LNG exports, including increasingly to the UK as the Labour Party are putting the knife to any O&G development.

It's not like DEC is selling tobacco - but feels like it's being classed as such. In fact it's classed worse - you can only get 8.3% yield with Imperial Brands - but today it's 17% with DEC!

GLA

Hi all,

I wrote this back in March 2023. I hope this helps explain "the rules of IFRS":

The following 5 points will hopefully explain how DEC's profitability works. I've used the 2022 Annual Report so refer to the page numbers for substantiation of what I'm saying:

1. There's a realised loss and unrealised loss. As you rightly point out if I've X revenue and Y cost therefore how can things be ok when X-Y and I'm making a loss! Well, if we split Y cost into hedging losses for 2022 then that's $1.92bn minus $0.895bn of realised losses = $1.02bn net revenue. (See Page 46). Then if you take main expenses of Operating Costs, Dep'n, G&A, Finance Cost, Asset Retirement Obligation (See Page 128) that comes to $0.94bn. So there's a $60m net profit or $282m if you exclude depreciation.

2. Looking at it another way, if you go to P131 Statement of Cash Flows. Look at what cash is being generated through operating activities we can see $388m generated. This is largely the $282m you see above plus some adjustments. This is a "proof" of profitability in that it is generating cash at operating level ($166m "sustaining" cash - including depreciation).

3. The next thing I'd point to is expansion. There's an expanding volume of 7% net but that's net of a natural 8.5% decline rate. More production means more hedging so the gains and losses are magnified because to maintain a certain percentage of future years hedged then you need to increase your hedges year on year.

4. Fair Value. I've not yet talked about unrealised losses. The way DEC have to account for future hedges is to make a "fair value" assessment of the gain or loss (IFRS rules). At 31st December 2022 the oil and gas prices were $77/barrel and $3.57/mmbtu. The average floor was $3.63/mmbtu. That's significant because gas today is $2.17/mmbtu. More about that in a minute.... But as at 31/12/22 the future 2023-2032 future hedges had to be assessed based on the prevailing oil/gas price. So the result of that led to the paper loss. Because it's a paper loss that assumes a/ future prices are the same as today's prices b/ all the losses (10 years worth) are coming at once. They don't. As an accountant, the matching principle is that you ignore future gains/losses where they are profit and loss however when accounting for financial instruments you need to account for their "fair value" and record a gain or loss. The break out of future losses is set out on Page 152 and 153 and equate to about circa $250m in 2023. That's a lot of money but assumes the price of gas stays at high prices (it hasn't in 2023 has it?).

5. As at today 26/3/23 we now know that the losses have substantially reversed because of the lower gas prices in the USA. Looking at the strike prices of $3.65, $2.81 and even $2.14 March 26th price is below all of them.... in other words the hedging has actually swung to profit.

So that's an accountant's explanation to a non-accountant.

GLA

DEC is number 3 today on Cash Magic screens behind Enquest and Harbour: https://www.investorschronicle.co.uk/ideas/2023/05/30/why-our-cash-magic-screen-is-doubling-down-on-oil/

I've just topped up to bring my average down to 91.66p which I'm delighted with.

GLA

Setanta,

>>> Sipps,(not something to be recommended with AIM quoted companies, in my opinion )

Entirely depends on your age, or perhaps better said, your numbers of years to retirement. A person with many years to retirement (aka a young person) would be wise to take higher risks on more speculative shares; whereas a person with few years would be risking their retirement, so should hold the bulk in lower risk holdings.

Rather than any small change like on this little forum a REAL reform would be the way that the vast majority of investors have "nominee" holdings. So the "owner" is Hargreaves Lansdown or Interactive Investor - not the human called Setanta or Agricore. In today's digital world, it would be easy to manage electronic share registers where the shareholders are logged. Marks & Spencers are pushing for this for example. Companies increasingly simply don't know who their shareholders are because of nominee accounts. Around 1% more of all shares become "nominee" each year.

GLA

Lolly - Couple of things:

1. >> As a majority holder in Bell & Lucy.......12.1% of BELL is not a majority holding!

2. There is no such thing as a "Reduction Sale Mechanism". (Will I find this term in Wikipedia?). This perhaps explains why you ended up "blue in the face"? Setting some arbitrary date to offload shares and telling people about that in advance would create a hangover to a stock - not a wise move. Businesses do that when forced to - and not as a clever strategy to unlock value. Glad you don't run TEK.

3. Valuing the intrinsic value of a share which is an investment vehicle (like TEK) is based on assessing what "the market" would pay. If there's a publicly listed price then that's how you value it. Try reading Buffett or anyone who knows a thing or two about investing.... this isn't something that Agricore dreamt up.

4. I agree with your "fact" that TEK has down over HALF from its highest ever market price. But that market price isn't driven by fact, it's currently driven by sentiment. Sentiment is a feeling not a fact, hence the point that I - and lots of others - are optimistic about TEK because of its underlying and growing value and progress.

But regarding of any sunlit future, right now the component parts are simply worth more than the current 13p buy price. And I've explained how. Meanwhile your only explanation to your negativity is a fact based on sentiment.

GLA

Discounted cash flow and rising rates would matter if revenues were a distant prospect. All 4 businesses are revenue generative and their growth is forecast rapid and near. The logic doesn’t stand up.

Which means the market price isn’t based on logic but based on emotion. People like Lolly who regularly post negative or fatalistic views - it can’t be worth more than half its net asset value because its market price is what it is. How does someone like Buffett profit from emotion? Bet against it.

I ran the numbers and if today’s market price is X and Tek holds Y shares of bell and Lucy which it could sell if it chose, it could give every shareholder 18p per share and throw guident and microsalt in the bin and shut down - and you’re telling me there’s a “logic” to that? Seriously?!!!

Even since this morning BELL has bounced which considering the placing at 25p is a positive sign.

My other point about another perspective of 2020 vs 2022 was that the market cap is roughly the same as back then yet back then Lucyd was a prototype pair of glasses, guident was a concept, microsalt was a lab test and belluscura a concept. I don’t need to lay out the progress made but there is no comparison- other than that emotions have changed. And 4% interest rates which over 1 year reduce the value of future revenues by 4% and 9% over 2 years.

Simon Thompson will be posting similar today or next week as the fundamentals are there.

Gla

Another perspective is this. Compare 2022 to 2020. The 2020 price was roughly 14p/share (it varied between about 10p-18p). This was when NAV was $32.7m. As at December it was $57.8m. Post Period BELL's market value is less (by almost precisely $7.5m) but LUCY has rised from $1.37 to $1.82 which is +$5.7m) and it's fair to say Guident and Microsalt have made progress. So let's net all that off to $57.8+$5.7m-$7.5m = $56m NAV as at 26/05/23 equates to £44.8m.... so a 50% discount to a NAV where 66% is publicly listed and the bad news isn't already baked in. The other 34% is not far away from IPO and therefore gets baked in.

So the 50% discount to NAV equates to Microsalt is worth zero, Guident is worth zero, and that selling off BELL and LUCY can only be achieved at a 25% discount.

If you believe that then you're a fool. Stay hopeful.

GLA

Starling is 12% of NAV. The valuation is book value not mark to market. We will see an IPO of Starling at some point … we are almost into the 7th quarter since the IPO market dried up. History suggests the drought will end soon

Gla

There's so much positive news beyond "Dividend Unchanged" actually:

-> Disposals YTD aka CASH £8.8m (£0.2m in Q1). While the gearing increased to 50.5% (as predicted) the realisations continue which will help bring this back towards 40%.

-> Uplifts achieved during period a/ new lettings +7.3% and b/ Renewals +11.7%. Remember debt is fixed @ 3.5% yet rental income was hoped to be increasing (in an inflationary environment). This confirmation is super positive and reflects what Stephen Inglis said in his recent interview - that the valuers have downgraded valuations and haven't taken rising incomes properly into consideration (i.e. that valuations in relation to their yields are therefore below fair value).

-> Uplifts achieved post period e.g. Manchester Green currently let at an average £17.07/sq.ft. (per the 2022 accounts) was let at £18.25 so a 6.5% uplift - so the post period (Q2) notes are also showing rising rents.

-> Today's inflation figures demonstrate that inflation is potentially going to be stickier/higher for longer. This is positive for future rent reviews and reletting as above.

And a possible negative:

-> The post period sale of £8.6m for Building 3 which is 80k sq.ft (see: https://finnandcompany.co.uk/building.php?slug=building-3&type=acquisitions) appears to have been sold for a £3.3m loss. Building 2&3 combined are 140k sq.ft are on the books at £20.9m so 57% (using the Sq.Ft ratio) suggests a £11.95m book value. Obviously this is my inference rather than known. Perhaps building 2 is far nicer? I actually visited one of the tenants there some 8 years ago, and I do remember they had "nice offices". :)

Overall lots to feel happy about, and as important the update doesn't reveal skeletons or reasons for the YOY price drop and its discount to NAV.

Meanwhile Dividend Unchanged too!

GLA

MrCautious, my analysis has inacuracies? Did you mean inaccuracies?

Amapa isn't shipping ore.... but I concede there is a legacy stockpile of ore at the docks some 100km away, earmarked to repay creditors, but which at current prices isn't economical to transport/sell. EMH I concede is a former (tin) mine, but is not producing (awaiting DFS) so no, not a current mine.

I don't disagree that KDNC/EMH have got huge potential but I still do disagree that KZG and KDNC are very similar.

Many/most microcaps are at crazy valuations - I'd agree that similarity does exist - just look at the highs and lows on IC this week it's only got FTSE100/FTSE250 company shares at 12 month highs:

https://www.investorschronicle.co.uk/tips-ideas/2020/11/19/shares-hitting-highs-and-lows-updated-18-nov/

Holding cash, and being cash generative are the 2 distinctive qualities for the current market.

GLA

Nice article from the A-r-m-c-h-a-i-r-i-n-v-e-s-tor

https://www.thearmchairtrader.com/tmt-investments-on-the-unicorn-hunt/

"On the unicorn hunt, you occasionally find a few donkeys"

"The current jewel in TMT’s crown is Bolt, the Estonia-headquartered competitor to the ubiquitous Uber [NYSE:UBER], which was founded in 2013 by a high-schooler with a EUR5,000 family loan. Bolt now operates in over 500 cities in more than 45 countries with 100 million customers. TMT were early in on the opportunity, having been investors for eight years. The fund’s current stake is worth around USD69.8m with a return on investment of 217x."

8 cents on 49 cents is a whopping 16% yield yet here's it comes rolling in once again.

MrCautious, your analogy of KDNC predicting the future of KZG has a number of important limitations.

1. KDNC is largely composed of early stage holdings which are all pre-FID (Final Investment Decision), and not producing. I have good news! KZG will be producing as of May 2023. The investment decision at KZG was made months ago.

2. KZG's 2023 Cash receipts will exceed its market cap. Meanwhile KDNC has illiquid holdings (due to lock ins on publicly listed elements). Cash receipts are far away. In fact new debt will be required for Amapa's refurb.

3. The market for iron ore has dropped to around $100/tonne; lithium is $40k/tonne - both are down quite a bit. HMS are at bumper prices; Diamonds are at a steady price.

4. Meanwhile KZG has numerous near-term ways to deliver shareholder value:

4a - Completion of the sale from Align to AMS - new, expert shareholder.

4b - Walkisvop Hot Commissioning and initial run rate of 2k/month

4c - Trading Update on Walviskop HMS & marine diamonds Run Rate of 6k/month by September confirming a $300k++ gross margin.

4d - Announcements on the expansion of the HMS operation - 1.5MT resource and running 6T a month is a life of 21 years (if there were no tidal replenishment). Maybe 85 years including replenishment (Therefore 10X the operation to achieve an 8-10 year life like Base Resources did)

4e - KZG start to receive a 2.5% royalty from the multi-billion resources in Tantalite Valley

4f - Further $9.5m+ receipts inc. 8% interest on remaining $9.5m owed.

4g - Announcements to use generated cash on new AMS projects. Or new projects elsewhere. Perhaps the REE project will resurface?

4h - Alternatively special dividends are announced. This could be a large slice e.g. 50%+ in a scenario where there are no better uses for the cash (it's my view there are better uses)

4i - Full year results as of June 2023

4j - Announcements to extend the claim to nearby 35X HMS beaches which we know are under consideration.

4k - Marine Diamonds are not factored in to the $150m NPV of Walviskorp nor part of the $300k/month gross profit, yet Align spoke to 300 carats/month @ $600/carat = $180k/month in its Research Note based on the CREO Design Pty study.

4l - Zircon and Rutile 1.2% and 0.92% also not factored in. These fetch a much higher market rate. We may see that the Plant is extended to separate and sell these.

To conclude I disagree that it's hard to see how KZG can/will deliver shareholder value Mr Cautious. I've given multiple reasons why.

This isn't a Brarzlian project where you receive a disappointing Phut Mr Cautious...... Have some hope..... your 3p break even and exit is coming! And for the rest of us, a 3+ bagger and bright prospects are coming!

GLA

When 40% of the supply is under sanctions then this has to be bullish for the other 60%

https://apple.news/ASZU_j_rjRKCj36VqkgV-sQ

SD,

My view is that arguably the ords and warrants could take a hit - let's say 50% - but the Prefs, Debts and convertibles "should" be close to 100% realisable.

If that's the case then that gives VSL holders a 15% upside on the proceeds. In other words VSL feels mispriced. I'm happy to wait on this and receive 10.2%/yr for the 2-3 years it takes to liquidate ... which is a 140-150% total return in a "bear case".

The "Bull Case" however is to look at how many FinTechs are actually performing - and have performed. We are talking about risk and down sides and struggling to realise break evens but - for example - look at Sage's bumper results today. Or Augmentum is a great example of this. They sold www.ii.co.uk at a huge premium last year and I believe their long-term track record is something like an 18% IRR.

In an upside scenario, the 30% non-debt could provide upwards of a 200% total return over 3 years (the 4% warrants would ratchet up)

GLA

silverknight, mondex is right and you're wrong - see this link to the hmrc = taxable income

https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm28020

but you are correct that it is effectively profit - and certainly isn't based on revenue.

here's a couple of articles which greatly clarify the 90% rule. key sentence is "debt is an expense and paid out of revenue so net income is whatever is left over" i.e. rgl could pay down its 49.5% gearing and not pay a penny in dividends to us shareholders if it so chose.... at least until its debt was zero and then it would have to revert to 90%.

also of interest is that "taxable income" is based on gaap profits (not epra). another nugget was that reit investing in a reit has to pay 100% not 90%.

https://seekingalpha.com/article/3062776-reits-the-90-percent-rule-isnt-that-big-a-deal

https://************/learn/what-is-a-reit

interestingly, it would take about 12 years of zero dividends (costing ~£34m/year) to pay down the net debt (~£390m) to zero or put another way each year would reduce gearing by about 4%. otherwise assuming realisations could happen at book value then disposal of about 50% of our portfolio would also pay off all debt. debt costs rgl about £13.5m/year.

having said all of that i love my dividends - sure you do too - so there's a happy balance to be found hopefully where improving the percentage of properties under rental (believe the gap is £20m/year of vacant space) as well as upward rates on renegotiations with some level of disposals to bring the debt down to 30%-40% gearing.

rgl's past track record certainly suggests this could be achieved.

gla

SD,

Your worries of the "unlisted shares in Fintechs" conundrum.... looking at their latest presentation deck (https://vpcspecialtylending.com/wp-content/uploads/2022/09/VPC-Investor-Presentation_FINAL-2.pdf) the gross asset allocation is 5% ordinary shares, 7% convertible debt, 4% warrants, 11% prefs and 70% debt. The 5% ordinary appears to be largely a FinTech position called "WeFox" which is an InsurTech growing fast and had a $4.5bn valuation in its series D funding in July 2022 and that this will fund them through to IPO (per Chrysalis who hold these).

Do you worry needlessly?

I do appreciate the deck is 7 months old but I expect the ratios haven't moved that much. The selling of its portfolio feels far less complicated if 95% are non ordinary holdings. Perhaps there's more room for optimism than the current share price suggests?

GLA