Member Info for Agricore

Aiming, you'll need to change your name selling at those prices! (or add "but not this year")

Trek, you said:
>>> Not that I am a body language expert but at around 22:30 when Eric mentioned ‘swaps’ I don’t think Rusty was comfortable!
I asked a question exactly about this and it was also ignored. I've gone through the accounts trying to understand the hedging which is a mix of swaps, puts and calls and how they breezily explain it as a way to "strengthen the balance sheet".

But the point is that it's still a liability so it's "non-cash" until it needs to be settled one day...... WITH CASH!!!!

My current understanding is that they are are incurring future years hedging liability in 2022 but relate to 2023-2032. See note 13 in the accounts. They have to book it to the P&L as a loss (hence the $1.2bn 2022 H1 loss that you see). But on a realised derivatives (i.e. cash) basis there's a lower $468m charge leading to a different profit calculation where (along with ignoring other things like depreciation) they arrive at a $223m "adjusted" profit.

You do have to question how realistic it is to ignore the hedging in looking at the profit. What I think it boils down to is one of 2 futures:

1/ Gas (and oil) prices drop dramatically. The hedging reverses and the accumulated circa $1.6bn loss is reduced or even reversed to a net profit. The problem disappears. Agricore was worried about nothing.
2/ Gas (and oil) prices keep going higher, or at least remain as high as they are now. The hedging will keep accumulating and the realised "cash" element grows too. Eventually this cripples DEC, hedging is dropped. The share price plummets.

My question asked surely the hedging creates a problem and introduces a risk and much as avoids one. It is damaging and destabilising the balance sheet, and steps should be taken to reduce the hedging in an effort to bring the liability down to manageable levels. (and take advantage of growing prices).

Bismarck, meh isn't an acronym it's an utterance.... it means so-so, not bad, a gallic shrug if you were a Frenchman.

Eyes, In the same breath you should also consider NSCI and IP Group (LON:IPO) too which commercialise a lot of university start ups. Most recently Oxford Nanopore. I hold all 4. The FIPP holding Thompson overlooks (incredibly) is Exscientia. You can read my analysis in the respective groups.

Jonah, thanks it's heart breaking to read about that. Lead poisoning is an awful legacy.

I don't imagine any of the signatories have any practical way to remove the problem and all are relief agencies and the like. If JLP can "detoxify" the fields then that's a laudable aim. However surely the economics of sifting contaminated ground for lead can't be a profitable activity? Wouldn't this need some sort of subsidy to make it commercially possible to do? Or perhaps Anglo would commission the work as they are liable?

Meanwhile JLP has its hands full with its growth plans so which project would be delayed to give bandwidth to a lead clean up?

Their method of reporting is driven by market expectation. The market "gets" PGM miner. But doesn't "get" Chrome mining. (Don't know about you but personally it makes me think of bicycle handlebars) - so it's no surprise they've moved to chrome by product reporting.

All the numbers are there to disect in the appendix, so it's quite easy to see if JLP are pretending to reduce costs. In my calculation the H2 cost improvement/reduction per tonne of chrome was **20.4%**
That's because H2 $37.1m of costs for 619,900 tonnes of chrome vs H1 $45m costs for 602,552.

The clown fellow is muddling in transport costs (which have increased) to arrive at a smaller number. Last time I looked JLP are a miner not a transportation firm so if the costs of transport have increased that's down to fuel and drivers. I don't hold JLP responsible for that. More importantly, JLP are telling the truth about reducing cost.

The other part of the report 34% reduction is improvement in PGM cost per ounce produced.

So even when you split out the by product - there's no hidden lie.

GLA and onwards to 20p

Hi SeisNav,
I've looked up the JLP basket and you could be right. Rhodium averaged about $18k/oz in H1 CY2022 (referring to Trading Economics) and it's 8% of the basket (historically). The below chart would suggest a $300-$400 uplift due to Rhodium. However the smelter keeps 19% and JLP gets 81% so would that not explain the missing uplift?

Metal/JLP share/Smelter Pays %/ Spot (Dec 21)/ Long Term
Platinum (Pt) 60%, 84%, 1,000 1,100
Palladium (Pd) 18%, 84%, 1,900 1,500
Gold (Au) 1%, 81%, 1,800, 1,550
Rhodium (Rh) 8%, 81%, 13,900 10,000
Ruthenium (Ru) 9%, 53%, 620 300
Iridium (Ir) 4% 48% 4,500 4,000
Net basket price # 1,818 1,528

I read your dropbox numbers by the way (after I'd written my piece). I saw we disagree on Cobalt quite significantly. I read that Cobalt at roan would be marginal (in the Dec 21 WH Ireland 40 page analysis). The SOTP calculation does show I think Mulifira (0p), Sable (5.8p) and Leopard (7p) being about 12.8p/share based on future but these will be very late FY2023 - if at all.
I think I assumed a doubling of cobalt to just over $1m EBITDA in FY2023 which I'd agree is v.conservative. Yours was $43.5m EBITDA. I think that's achievable in FY2024 or FY2025 but not now, not yet.

SUP bought 2 businesses. Here's what I found on the 2nd acquisition:

1. Accounts also 28/2/21
2. Revenue £1.6m, PBT £0.67m (PAT £0.67m too - accumulated losses maybe?)
3. Net assets £0.84m
4. 6.66x valuation inc. assets would be £5.3m. NB 2020 profit was negligible so perhaps £5.3m is too high?
5. If it's correct this ties in with my estimate for Cuts Ice (bought for circa £16.7m + £5.3m for flavour core = £22m vs £25m borrowing facility headroom).
6. Virtually all sales were made to guess who? Yep Cuts Ice. There are loans and a common holding co entity (i.e. 2 companies 1 owner). Therefore I would disagree with the Equity D statement "they work solely on an OEM basis for the e-liquids industry"..... erm bit misleading, better to say they work almost exclusively with Cuts Ice. Maybe £30k on sales to other OEMs.
7. Lease liabilities 2-5 years in Swindon of £300k
8. Not much else to add but I would comment that it makes sense why they did 1 RNS for the 2 acquisitions. It's really all 1 thing when you look at it.

Nice to see we're back above £1 btw!

GLA

Additional factoids reading Equity D's 9th August article:
> Italy and Belgium are mentioned which weren't in the 2021 accounts.
> Equity D think European sales were majority of sales. Unless the mix has completely changed since Feb 2021 (last accounts) then this is incorrect i.e. majority were UK and not EU sales.
> The importance of having an ISO Class-7 cleanroom matches GMP (good manufacturing practice) industry standards, to meet vaping-related Tobacco Products Directive (TPD) and "other regulatory standards" (Agricore > Can't think what other standards these would be?).
> It begs the question of how SUP have managed without a cleanroom until now? It feels like this could unlock new markets and opportunities maybe? Particularly EU sales? TPD is an EU directive from 2014 which was incorporated into UK law: https://www.legislation.gov.uk/eudr/2014/40/contents
This gives a general overview and is relevant to SUP growing focus on vaping (e-cigarettes) but didn't contain anything that I could find to set out clean room standards or anything like that.
https://researchbriefings.files.parliament.uk/documents/CBP-8114/CBP-8114.pdf

That's about it. I'll cover Flavour Core separately.

Paul Hill banging the VLG drum twice in a week:
https://www.youtube.com/watch?v=MpcGYq3shNc
https://www.**********.co.uk/articles/singer-capital-markets-monthly-macro-update-august-2022-4c04974/
"If you push the clock forward to 2023 you could easily see this one double"

The (full year) forecast values for 2022 were £164.9m and EBITDA £59.9m and EPS 1.9p (from WH Ireland)
So calendar H1 2022 taking a simple half would be £82.4m EBITDA £30m and EPS 0.95p (Forecast)

So how did we do? Well bearing in mind that FY2023 H1 will exceed FY2022 H2 as Southern ramps up further then the answer is ok - considering:
Revenue £82.7m (£0.4m beat to forecast) and EBITDA $31.48m or £26.23 (£3.7m below) and EPS 0.84p (12% below) * to WH Ireland's forecasts.

It did this through increased PGM production (+5%), reduced PGM basket prices (-3%) and reduced PGM unit costs (-34%) in SA (despite rolling black outs, inflationary costs and supply chain challenges). Zambian copper production increased 14% to 1,388t, and; the Roan copper concentrator was brought online in early August and is already operating at 90% of designed capacity.

LOOKING FORWARD: H1 Estimates. Assuming JLP achieve 3700 tonnes copper as targeted and the cobalt circuit doubles recovery I estimate $32m revenue (assuming $8k/tonne copper which may be conservative) and $18.5m cos so $13.5m EBITDA for Zambia.

SA meanwhile targets 44k oz of PGM and let's assume same basket price (again conservative?) and costs static. Chrome and 3rd party materials performance repeats. That translates to an $11m uplift in revenue so $97m revenue and $65 cost of production so $32m EBITDA.
If we assume there's no further uplift for FY2023 H2 (v.unlikely) then this would translate to a FY2023 $194m full year revenue and $64m EBITDA.

Combined H1 for all sites = $129m rev, $83.5m cost, and EBITDA $45.5m
Again comparing to the WH Ireland forecast this is 16% below forecast (revenue) and EBITDA 31% below forecast.
(Forecast FY2023 = £258.9m revenue and £110.5m EBITDA)
NB: Think of this as a worst case scenario rather than my prediction.

So where is the discrepancy in current and future performance vs the forecasts (and the 29p target price)?

1. PGM basket prices? WH Ireland assume a basket price of $1800 vs $1584 actual av. in FY2022 H2.
2. PGM cost/ounce $500 vs $584 actual av.
3. Copper cost/ounce $4750 vs $4931 actual av. (we should this drop as production rises)
4. Zinc circuit planned for FY2023 I've not factored in. Lead? Is Cobalt only doubling too low?
5. Unlikely that the 3700 tonnes in H1 wouldn't be exceeded in H2
6. Sable coming online?
7. Northern Refinery coming online?

Obviously we don't have actual accounts just a trading update so difficult to see what else could explain the variance.

Overall I think there's reasons to be positive, although there is some disappointment. On balance there shortfall a/ isn't that bad and b/ is external market conditions rather than a failure by JLP or Leon. Are we bad enough to justify this to be at half its target price? Absolutely not. I see 20p/share as a fair base price until we see further progress.

As we sang in 1997 (maybe that song should make a come back?) Thingsssssss can only get better.

GLA

Does anyone watch CNBC in the morning? The new bloke at Proactive is Geoff's younger brother

IC gives a "meh" assessment of DEC but concedes it sees a stronger H2 2022:
"This isn’t the barnstorming result seen from the majors and some North Sea producers. But Diversified can still hang with that crowd through its 10 per cent-plus dividend yield. Buy."
https://www.investorschronicle.co.uk/news/2022/08/09/steady-not-spectacular-half-for-diversified/

Smegma, on the contrary it’s time for inaction. The asset sales should give a war chest to use for the coming downturn.

We are richly rewarded in dividends as it is. The market is pricing RLE for these dividends to be cut. If the board run a tight ship and prevent that by not returning capital on a whim we will see a rerate in time.

Pedro, fair value was previously 181p (May 2022). Cenkos are reviewing this following the 2 recent acquisitions.
My estimation is that the previous forecast EBITDA of $443m will be uplifted by a run rate of additional $82m EBITDA (and given that we are mid year it will pro rata). There are no forecasts on the 2nd acquisition for 3rd party well capping earnings (to minimise methane emissions). The Inflation Reduction Act will make this a highly profitable activity since methane emissions will attract severe penalties.

Working on the basis that earnings have increased 18% then it's not unreasonable to put fair value at £2.14. More if you consider the well capping services could add a further $10-$20m EBITDA (£2.25 fair value?)

As Unvrkw said the 12% dividend (NB 10.5% after US witholding tax) helps too.

Hi unhooked, I wrote my piece before reading equity’s new article so I agree with you on the new know how and other points you made. Have they bought 2 businesses? There’s a flavour business too isn’t there? Need to read it properly later

Another ST write up this time focused on CamGrAphIc and its potential for high speed networking. As well as the raspberry picking robots.

I'm increasingly liking "automation" and "productivity" plays as in a stagflation environment these make a lot of sense i.e. scarcity and inflation drives desire for productivity to offset such costs.

But I still think Exscientia is the jewel in FIPP's crown and ST only gives this a cursory inspection (it's off its lows based on a general rebound in Biotech). See my other posts on its recent updates.

GLA

It is extremely concerning to read that Equity Development have published effectively what is a £15m drop in guidance to the forecast turnover they published only 5 weeks ago. I base this from their new report which says the combined revenue of Supreme and Cuts Ice will have no impact on revenue and earnings. I appreciate they say they will "revisit" this at the next update...... is that really good enough?

Cuts Ice generated £10m of revenue in y/e 28/2/21 (latest accounts) but £15m 28/2/20. Given Cuts Ice report significant disruption due to Covid in y/e 2021 (UK and Germany closed vape shops as were deemed non-essential) there was negligible profit however again using the 2020 numbers the PAT was £1.5m. Given the reopening it *SHOULD* be earnings enhancing.

We don't know the purchase price (for now). However £18.6m is my guess (6.66x 2020 earnings plus the net assets of some £8.6m).

Some other factoids about CutsIce:

> Based in Park Royal NW London. Building appears to be a lease expiring in the next 2-5 years.
> Gross Margin 46% (vs SUP 44.7% GM on vaping!)
> Channel Mix: 93% wholesale and 7% retail (presumably online sales?)
> Geographic Mix: UK 48%, EU 48%, ROW 4%
> Germany, France, Spain, Holland are mentioned for countries sales
> Historic stock impairments up to £0.9m (yikes)
> Historic Bad Debt up to £0.2m
> 3rd Party Logistics partner in Netherlands to ensure rapid delivery to EU (avoid red tape)
> Aggressive depreciation policy suggests no hidden losses hidden in FAs
> Headcount of approx 90 people

Conclusion: My take on the limited information is that this will be both revenue accretive and earnings accretive. There are great synergies from a vaping point of view - however the "traditional" model of cross sell and "it's not fair" might be somewhat limited. What I mean by that is that the customer type of Cuts Ices might be more distributors who sell to retailers rather than direct relationships with retailers (as SUP has in the UK and more recently in Ireland). So perhaps the opportunity to cross sell lighting, batteries and so on might be limited?? I might be wrong on this and it is a question to be posed to SUP. There is clearly an 88 Vape and Liberty synergy however.

Plus cost reductions will feature and UK distribution costs particularly can be streamlined.

If the 2020 profit rate can be restored, plus synergies/cost savings of some £1.5m (of £5m per annum), plus synergies for 88Vape then this could mean a £3.5m-£4.5m uplift to earnings.

So on an assumed 6.66x valuation that drops the simple payback could be a highly attractive 2-3 years. Liberty was done on a 7x valuation so I might be slightly below the buy price.

So I'm happy with this announcement and it should be positive for SUP shareholders too. There appears to be no dilution and it is being funded through debt facilities (SUP has a £25m debt facility - so if I am wrong on the purchase price it has to be below £25m and less as that

Can anyone name a share that SP Angel have tipped and that has subsequently gone up?

Their usual style seems to be to say, for example, BMN is worth say 35p without any real analysis as to why/how they arrive at that conclusion.

Hi Smkr, Thank you for all the posts and perspective.

I added a position here today on the back of the Francisco basin news. I was particularly impressed by the analyst estimate of cost per tonne ($4/t vs a sector average of $46/t).

There appears to be an enormous disconnect between lithium price/demand and the perceived value of lithium miners generally. Is that your experience too?
All my lithium plays are underwater but the fundamentals remain strong and perhaps the Inflation Reduction Act will be a catalyst that means I've added CTL at the bottom of the market.

Certainly Fox Davies appears to think this stock has a bright future!

GLA