@M.McNulty Thanks for coming back to me. No need to get too tied up in discussions, important to keep your own time and not everyone else's.
Just to close out on my earlier point. I have since re-read your investment piece and I note your statement which says ;
"We are led to believe that this was to appease the existing major shareholders, who demanded pre-emption rights."
That is also very plausible but if so, then the whole exercise was handled very poorly, given the hurried nature of the 2nd raise and the lack of lip service paid to it, when the subscription was announced.
Nevertheless i remain open minded and look forward to seeing some TR1s that may shed more light on events.
That aside, I share your enthusiasm and agree that this is the best investment opportunity that i have come across since BMN and I have spent much time searching.
Some used to try to sell me the idea that BMN was expensive when it made its run from 1.3p to 12p. When they raised on 26th March 2018 for what felt like a heavy discount to the price on the day (c. 20%), they was much disgust. However, its not what you raise but what you raise for and how you use it.
The BMN share price never really looked back after that point, adding 380% from the raise date and a total of around 3,600% from its lowest low, driven by wider fundamentals that the funding helped deliver.
No two stories are exactly the same but some things do echo. A 2-300% rise is hefty but it has to be placed in the context of where the business has come from and where it is going to.
One obstacle at a time but AVCT has every chance of being one of those stories for the grandchildren.
Stay focused, remember to review, take stock and where possible keep a cool head because the air can get very thin on journeys like this one.
One thing that is making me scratch my head whilst trying to avoid making 2+2 any greater than it needs to be, is the wording used for the additional £3.75m in funding.
In the £2m subscription the company referred to their October update by saying ;
"The Company intends to utilize the net proceeds of the Subscription to continue to execute the strategy outlined last October."
That reference was to the 18th October RNS listed strategy, which stated 3 items ;
"• the phase 1 clinical trial of AVA6000 pro-doxorubicin;
• continuing to advance Affirmer immunotherapy pipeline with partners; and
• delivering further commercial progress for therapeutics and diagnostics."
We were all surprised by the additional £3.75m raise, given it was announced just 4 days after the £2m subscription which had included the following statement ;
"Given the current economic climate the Board have deemed it prudent to take on a small amount of additional equity capital at this time to ensure that it is in a strong position to exploit progress after the coronavirus pandemic is over."
So it was not designed to be a part of the finance needed to develop the reagents for the Cytiva partnership.
The other intriguing point here is that when it came, the £3m placement was just 2 days prior to the collaboration announcement with Cytiva.
The one key difference in the £3.75m placement RNS and subsequent circular, is the addition of this line under use of proceeds ;
"developing a small pipeline of Affimer® based diagnostic tests for licensing."
We know from the current agreement with Cytiva that AVCT "retain all the commercial rights to future products" and the circular states "the group is making very good progress with its own pipeline of diagnostic tests which will also
deliver licensing opportunities in the medium term."
However, both the circular and the RNS, pre-date the developments with the Covid Antigen test and the relationship with Cytiva.
It is clear from the accounts that the £2m raise plus the £8m cash on hand, meant AVCT was well supported to see out 2020. Hence why AVCT talked about this additional capital assisting them to be in a "strong position to exploit progress after the coronavirus pandemic is over."
So for me the £3m has to be covid related and its timing was just too damn close to the CVytiva announcement. All of which makes the addition of that line related to licensing all the more intriguing. Be it that 2+2 is still 4, until it isn't any more.
I would suggest that focusing on the potential revenues, whilst with merit, is not where the true value sits here.
For me if the revenues/cash flows demonstrate an ability to support the business as it develops its various existing platforms, then that in itself, should drive a very worthwhile valuation, even without a long term Covid revenue stream.
However, the truly big prize here is achieving a rapid test, at sector leading speed, that is reliable and cheaper than the opposition, for what will likely be the most famous virus of our lifetimes.
That will put AVACTA truly on the map and make what they do highly desirable, especially when big pharma starts preparing itself for 'potential' future virus outbreaks. They were slow on the uptake first time around, but won't want to make the same mistake twice.
Its not always about what you do but how many people know you can do it.
A covid test that can be sold to consumers at a cost effective price, is about as strong a piece of exposure a little company like Avacts could wish for and won't be forgotten. Such interest when seen in the world of pharma, has the ability to drive commercial interest that can dwarf, anything that immediate revenue streams could or would do, for Avacta's front end valuations.
My humble opinion only.
@wolves2211 It is important first and foremost to be clear, that an end to Covid is what we all want. Too many friends and family are and will be affected, by this virus and the economic fall out that is yet to come. So whilst making money through investing is of course welcome, it comes second to health.
In terms of a vaccine, even with all the government assistance and hurdle jumping in the world (bear in mind AVCT and Cytiva will highly likely receive the same medicine), its going to take 12 months (absolute minimum) to get a vaccine on the market.
Then said vaccine has got to be produced in quantities that allow every affected country to function at 100% economic capability.
Furthermore, said vaccine is going to be expensive and so who it is given to will be based on a selective process. It is also not beyond reason to expect new strains of Covid to exert themselves as we go through another Winter and possibly beyond, meaning the process has to be re-visited with rapid tests acting as a deterrent and economic support until it is ready.
So at the very least AVCT/Cytiva are going to have a very good run at this until the vaccine is fully bedded in across much of the world. In my opinion, the test is then going to be employed as a hand in hand mechanism to assist ad support any vaccine, as its release to the market is built up.
In addition, when a rapid test becomes available, the demand front end (once appreciated) is going to be astronomical. Even if we are just talking about a concern that Covid will break out once again, organisations are surely going to stock up on very large quantities, as a just in case mechanism to reduce the risk that their businesses will be further affected by said secondary break outs. That's because the cost outlay against doing nothing, has to be justified, given the upheaval caused by stopping works. I would go one step further and predict that any necessary further government aid would be dependent on companies demonstrating they have done everything they can to stay in production. So cost effective rapid testing would be a must, meaning yet more sales.
As individuals seeking peace of mind as we move into Winter 2020, who is not going to buy a box of tests from the chemist, in order to know that when we visit our grandparents, we are not taking Covid with us?
That all said, even if AVCT were to only get 1 good years run at sales of this test, it will do wonders for their financial position and for their moves in the cancer sphere and other areas of their business. It will also place them very much in the shop window in terms of further partnerships in the diagnostic sphere and/or as a business that is potentially worth acquiring.
What better sales pitch could one have than being the ones who brought the first self administered rapid covid test to the market.
A sign of things to come and that the theories are becoming the reality. It does not take too much imagination to conclude that this sort of measure is an absolute necessity in order to get people flying again.
One can also readily imagine a scenario where by government bail outs or loans, will come with caveats that businesses take all reasonable measures to ensure they can operate as fully as they can. Buying a large batch of rapid saliva tests, would be a drop in the ocean costs wise, compared o the costs of grounding planes and paying rental fees. Plus many airlines have contracts that demand that they use their berths or lose them. So again its not hard to imagine just how many airlines will be on the phone for these tests, should they indeed hit the market later this year.
Lastly, whilst the example in the enclosed article is indeed a solution, it is by no means as cost effective as a self administered test. The number of staff shown could be reduced considerably as passengers are encouraged to complete the test in an enclosed area.
This is of course just one avenue for such a test. We could spend a week highlighting further big examples, such as trains, sports events, bars, restaurants, adventure parks. Just think what the likes of Disney could do with such a test. It goes on and on and on.
I would encourage investors to read the article carefully. It gives an insight into the level of desperation being shown by the US government, as it fights to reduce what is the biggest break out of Covid to date.
When one reads such things as ;
"Shortly after the FDA authorized the tests, members of the White House’s Covid-19 testing task force called Brooks to congratulate his team and ask how to remove any regulatory or financial hurdles that could prevent the test from being deployed."
"The test developers also have been contacted by the CEOs of some of the world’s biggest life sciences companies that are involved in coronavirus testing."
These are major signals as to the speed with which valid tests can be brought to market. All standard times for regulatory approvals and processing are out of the window for Covid.
So if that is what the US government and leading life science CEOs will do for a lab based 24-48 hour saliva test, then what are they going to do for a 10 minute home based test, that can be self administered anywhere in the world and whose only limit for deployment, is how fast the partners can produce it.
The decision on whether AVCT has 1 partner or 5 partners, will depend solely on AVCT and AVCT only. This is not about convincing anyone. I would think Cytiva are delighted to be the first and the others are busy trying to make sure they aren't too far behind in the process. A process that is likely moving at considerable speed.
Thank you bopd. Like I said earlier I would very much like the chance to see this page you refer to, myself.
I attempted to use the link you provided but it didn’t work. I then searched the main website employing the various key words you have mentioned but without much luck. Are you able to copy the link to that page so we can judge for ourselves?
An even simpler way to check the figures is to run the accounted $1.673m figure against the average AUD/BRL exchange rate for 2018 and 2019. Not 100% accurate because the figures are shared across half of 2018 and half of 2019.
That would be c. BRL 2.73
= BRL 4.567,290
If we then divide that by your figure of 24,519, we get BRL 186 per ton. Again pretty close.
So it really does feel like the quoted figures are in line with the last set of accounts from HMI, which ran to June 2019 only.
All f which makes sense, given the company has officially confirmed that it sold 50k tons in 2019, which has been issued under more than 1 RNS. So if they were lying then they would have a very big problem on their hands, along with their Nomad Strand Hanson Limited.
@bopd Firstly thank you for sharing your research. I have tried to locate the page you have highlighted but without success.
A couple of points I would raise though, which may be relevant.
Firstly, it was October 2019 when HMI announced their intention to change their accounting date from 30th June 2019 to 31st Dec 2019.
Secondly, I would expect as a public company, no matter what the requirements may be of the Brazilian government, information cannot be published without first having been audited and made available to all shareholders.
Thirdly, I would expect that all data recorded with such authorities is historic and the last known published set of figures.
With that in mind, I would expect that the trading figures issued in the final results are likely the most relevant cross check point. There it is stated that HMI achieved c. AUD $1.673m in revenues.. The exact timing of sales is not known but the average US/AUD exchange rate for 2019 was circa AUD $1.44.
That gives a US $ figure of $1.162m
At $48 per ton sale price, that would equate to 24,204 tons. That figure is not all that far away from the figure you have provided. The exchange rate fluctuations and sales prices alone could justify the small difference but there is also the question of when cash on hand etc was recorded in each currency.
Like I say, I would welcome the chance to see the exact page in question but it feels very much like the records relate to the previous 2019 sales, which ended 30th June 2019.
I have been on these boards a long time. Interacted with a wide variety of individuals and been accused of being many things to many people. So not much surprises anymore.
The last paragraph says we because it’s a quote from HMI management, which I clearly highlighted as such in my last post.
This statement has been made in a shareholder Q&A and a trading update, both of which have been released under RNS. Therefore why do we need to question it? Pull it apart or seek further reassurances?
The company is saying it sold 50k in 2019. If so that is considerable progress in comparison to 2018 and that fact, that progress, is not alone.
They have a full mining license, 320kt production capacity, their product far wider proven in the market, an active sales team and have $400k less weight to carry in costs.
They are clear they need no further capital from me, a shareholder. They are so cash rich they feel it acceptable to go out and purchase 18,000 trees to make themselves carbon neutral, which is yet another signal as to where this company now stands and how it feels about its future.
Just takes a bit of trust to see it.
@bopd Good morning. Whilst i appreciate that you have first hand knowledge of product with HMI, I would nevertheless caution that prices in May 2018 bear little relevance to today. The business is a completely different animal now.
The 2nd Dec 2019 update is the most relevant point and the one the company is using to communicate its break even point.
"Sales for past 12 months are ~50Kt, equivalent to breakeven at profit before tax level
Sales price maintained at approximately BRL200 per tonne (US$48/t allowing for variations caused by exchange rate movements)"
With regards to the price being dropped to capture market share, I see the validity of your point but the company is clear that they are on the right path. It is the valuation the market is giving the company that is currently out of sink here.
The 2019 message is that 50k tons sales were achieved at that price. That the vast majority of customers are expected to return in 2020 and orders from them should in the main increase.
Two things that need to be recognised.
1. Margins will be reduced if the BRL price is maintained, be it temporary or more long term.
2. The break even point has been adjusted by the change in the BRL rate but the US $400,000 in costs savings more than counter this, even at the inflated BRL rate of c. 5.15.
What I find most interesting here is that they have been able to achieve 50k in sales with 68% coffee sales. Given the fact that coffee is only the 4th largest market available to them behind soybeans, maize and sugar cane, means even limited market penetration that matches the achievements in coffee, can lead to a substantial uplift in yearly sales.
Point of reference 6th Dec 2019 shareholder Q&A
"The reason coffee is so strong at the moment is because we have been working with coffee producers since we started the project so have more test results and established more relationships. We expect that this will evolve over time as we get more results from other crops."
Bottom line here is that HMI needs a PR injection or to reach tipping point in information flow, to compound the arguments they have been slowly putting together.
A £5m MC is just tragic given what they have achieved. Yes they have made errors. The handling of the interims from March 2019 were a disaster that they to date have not recovered from.
But that does not take away the progress and even if they continue to make a small loss, they have stated quite categorically that they are able to remain self sustaining for 2 years, even if Corona causes delays to things.
I have made an argument for a brighter future due to import supply problems and cost increases. Cost increases HMI won't have affect them because they are local.
A £5m MC juts doesn't cut it even if the BOD have trust issues. The facts are there to see that progress has been made. The cash on hand over the last 6 months proves it.
@bopd the following statement from the 2nd Dec 2019 is key ;
"The Company's total annualised costs, excluding one-off costs, are currently approximately US$2.4m. The average sales price of KPFértil is BRL200 per tonne (±US$50/t allowing for variations caused by exchange rate movements). Accordingly, based on the average sales price and total costs, to reach breakeven the Company would need to sell approximately 50kt. "
So the product price is held at BRL 200, whatever the exchange rate fluctuations.
That means in theory that HMI needs to sell more product to hit their breakeven because a number of costs are in denominations outside of Brazil.
The 2019 accounts demonstrate at least 41% of the costs (cost of sales) look to be in Brazilian Real.
That would indicate that up to 59% are external, likely in AUD.
The AUD is currently running around 15% stronger against the Real than 2019 ave. So there is an argument to be had that 60% of the said BRL 200 (BRL120) is running at 15% higher. So an additional BRL 18 per ton is required to cover AUD related costs.
At 50,000 break even previously, that would be 50,000 x 18 / 200 = 4,500 tons.
A very simple calculation but an indicator that 50,000 became c. 54,500 break even.
However, my points this morning related to the perception HMI finds itself under, in that bad news must lead to punishment of the valuation but good news needs to be ignored.
In their 17th March update HMI stated ;
"Total permanent annual cost savings of approximately US$400k have been identified and implemented"
"All savings are from "general and administration" categories"
"Further cost savings expected to be made during the year"
There is an argument to be had that these costs (general and administration) are AUD denominated and so should be removed from the 60% non Brazil linked costs.
Even if they aren't, based on the previous price guidance of BRL 4 per US dollar, that reduces the break even by 8,000 tons.
So simplistic calculation that it is, we are talking a c. 3,500 ton net gain based on these two fundamental developments with more savings expected during the year.
However, I return to my initial statement regarding sales and demand. 50,000 ton is merely a marker in the sand and said 4,500 tons shouldn't be all that great a focal point in the end. Example being $2.4m actually = 48,000 tons.
The 150% increase in sales for Jan/Feb, as early an indicator as it is, is still an indicator of substantially more demand. Even a third of that increase feeding through to the whole year, would deliver more than enough progress, to demonstrate a self sustaining model.
The words from the company today repeat that message. They are self sustaining and expanding. Hence why I believe the exchange rate fundamentals work far better in their favour than against.
Note - The numbers i have generated are extremely simplistic and merely a guide and nothing else. DYOR
One final point on that. I have heard the criticisms of the HMI product and its performance in comparison to established imported fertilizers and i remain open minded.
The company has reported a high rate of repeat business, which is encouraging, be it price or performance led.
What is important to recognise here, is that this Covid outbreak has and will go on to demonstrate, just how reliant countries are on international supply chains and how easily they can be removed, when those countries supplying to them, run into trouble.
So there is a strong case for countries whose key industries (such as agriculture is to Brazil), are so reliant on imports, revisiting this set up and beginning to look inwardly/locally, to find a means to avoid such reliance in the future.
HMI as a local supplier in the heartland of said agriculture, is a prime example of a company that would gain from such a move.
@f15jcm Indeed but first and foremost this is about demand and sales. HMI is already able to demonstrate itself to be considerably cheaper than imported fertilisers. The problem to date has been proof of concept through implementation by customers and the time needed to achieve that.
We are now one year further down the road with a much wider customer base, in a market where those sitting on the fence, are now staring a +20% increase in import costs due to the deterioration of the Real.
I don't see that situation improving for the foreseeable future. This is compounded by the fact that we are now just 1 month away from the main buying season starting for coffee and sugar cane, with other such as soybean to follow shortly afterwards.
Some farmers may still see imported fertilizer as their preferred option but can they now afford it or are the benefits still there, at such elevated prices. Further interruptions to the supply chain will further compound price increases as more customers fight for less supply.
HMI is local and available. Their only problem is staying in production, which is an unknown to date but as I said earlier, if farmers cannot obtain fertilizer when they need it, then local supply may be deemed critical for the economy.
Its a theory more than anything else but as investors seek out companies that are directly linked to the cure for Covid, the smarter longer term move, may well be to seek out those companies that feed the most critical supply chains of all, our food lines.
Finally, Brazil has been slow to react to the Covid outbreak and may well pay dearly for this but one thing is for certain, their president will fight the shutting down of industry critical to the economy, with everything he has. So HMI's chances of at least supplying stock piled material through this, is higher than in a great many other countries.
Plus at the end of the day, it isn't difficult to mine or indeed to process. So at a time like this, they could be being presented with a golden opportunity, which if nothing else will help them get their product more widely known.
So yes exchange rates into pounds etc is also important but first and foremost this is about sales and they could receive a real boost from the Real and perhaps Covid itself.
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I am by no means attempting to say that HMI is the best stock since sliced bread or that they management team are perfect or haven't made mistakes.
However, what is also not deserved is the current valuation.
If HMI was sitting at £10-12m in value, I would be saying its cheap but its understandable why. Prove yourselves please by achieving it, then lets see what happens.
However, at £6m, the business isn't being accepted as break even on its business. It is barely being accpeted as having its cash in the bank and is certainly being ignored for what it has cost to set the mine up, push it through its various permits and feasibility studies etc. I accept that further investment in the mine, storage etc sits outside this break even and so taints the numbers and that affects their standing in the investment community.
However, said investments also add value. In addition, they demonstrate that HMI sees the future sales that it so often avoids commenting upon. If not, then why do it to yourselves? Its not bravado or sticking their head in the sand. 2019 has proven that the existing facilities can handle 50,000 tons. So if the future bigger sales aren't there, then why expend monies that push you closer to having to raise cash, when you don't need too. Again more signals.
It may well take this year to demonstrate that the business is achieving what they indicate they are going to. Even longer if Covid has an influence. Whatever the case, I see far more value here than the current valuation, such that I have even added today.
If they get it even half right or better still deliver even more due to the influence of Covid on imports and their prices, then today's valuation is a fraction of the true value, such that the wait for me will be worth it.
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Long term holder here who post 29th March 2019 Interims results, decided to give the company a chance to see their plans through before judging fully.
Whether investors like it or not, HMI is tainted by the strong perception that management is bending the truth for their own gains. That they are simply taking a pay packet and perhaps running some sort of lifestyle company. This is driven by what is the biggest issue here, a lack of forward guidance and forecasting.
This view point has become so strong that all evidence to the contrary has effectively been ignored by the market, however much it has mounted up.
One clear example of this is today's update. There the company has reported a 150% YoY increase in sales up the end of Feb. Some will ask why can't they forecast this out to future revenues? Well whilst that may have been appropriate before, it is now unfortunately inappropriate given the true impact of Covid on the world, at this time, is unknown.
Whilst the first 2 months of the year are assumed to be the lowest sales months, all the company can do right now is better what they have experienced to date. A 150% increase in sales, however low they were previously, is worthy of note and should be a signal for things to come.
A simple add/subtract of the previous H1/H2 2019 figures (Note HMI changed their reporting date), shows HMI achieved c. AUD $580,000 H1 2019 sales, which at the then US$ exchange of $0.70 = $405,800.
At the reported $50 sale price, that equates to c. 8,116 tons.
We don't know how many of those tons were sold in Jan/Feb. However, it is also important to recognise that whilst the bigger markets of coffee, soybeans and sugar cane, are May to Oct, there are still some crops that are purchased in the earlier months of the year. See slide 10 below.
Now it would be wonderful if HMI could release a YoY update every couple of months, so that investors could get a better feel for how things are developing. However, progress in my eyes is clearly being made.
If they can maintain even half of that progress through to the end of June, they will be running at 20,000 tons prior to the really big trading months.
On the lifestyle side of things, I am encouraged by the decision not to issue performance shares. I have seen bigger companies push these through on worst performances. I am also encouraged by the US$400,000 in cost savings.
This year it is likely c. 45,000 tons (savings instigated post start of year).
So the signals are there that HMI can better 2019, if they can maintain production and sales.
My feeling is the vast majority of businesses will be affected by Covid. However, the indicators on imports being affected and more expensive, lends itself to HMI being encouraged to maintain supply, particularly if they can stockpile ahead of Summer.
@James I am about to go out now and will likely be busy for much of the next 2 days, so a detailed response is difficult right now. I have had a quick look and am slightly confused as to why the already accounted for 2018 tax liabilities would be a consideration for the reported cash position as of June 2019. The tax liabilities have been adjusted in the interim accounts, which would lead me to believe they are not part of the current cash position.
Perhaps I am misunderstanding something, it has been known.