London South East | The UK's favourite investor portal.

This ongoing board/ownership battle continues, perhaps starting in 2022 for anyone interested to look more into it. It's really unclear what this means for shareholders, but Kitous, especially when combined with Hanna, dictate the company's future.

This is a shame as their holdings would provide them far more value in capital appreciation if they allowed the availability of their stock to entice interested buyers. In view of continued post-inflation growth which suggests that they have a valuable service/product. This fact is further attested by comparision with many failing restaurant businesses and being depsite increasing competition due to food apps.

Their shareholdings would appreicate many times over if this achieved a real market valuation (given growth, cash, and cash generation) with increased, even token, emphasis on shareholder return. Their shares could easily 10x.

Wagamama was bought for at £560m (they had 6x number of Comptoir Group restaurants, £560mn/6=£93m). You can futher discount this £93m sales valuation for things like different brand values, different growth prospects etc,) but even extremely heavy discounting makes this a potention multibagger... but only if the company's share are allowed to trade more freely on the market with strong confidence in shareholder support and representation.

If Kitous and Hanna, if rationally bothered about enriching themselves as much as possible, see the bigger picture then they would realise they stand to make far more - through capital appreciation of shareholdings rather than increasing wages from the growing company - from allowing shares to freefloat and enticing investment houses

Continued.

"We have prepared a base case cash forecast for the forecast period, based on our current business plan

and trading assumptions for the year. This is well supported by our forward sold pipeline of three PBSA

developments and seven BTR developments for delivery during the period FY24 to FY27, as well as the

reserved/exchanged and forward sales for our Affordable Homes business and the contracted income for

Fresh. Our currently secured cash flow, derived from our forward sold developments and other contracted

income, net of overheads and tax, results in a modest cash utilisation over the forecast period, with the

result that our liquidity position is maintained.

In addition to the secured cash flow, the base case forecast assumes a number of new forward sales and

further house sales, which if achieved will result in a further strengthening of our liquidity position, after

allowing for dividend payments."

3. So current trading on expected secured cash flow presents no issue allows them to tread water, and anything additional deals (bear in mind what Oak Bloake covered has been announced since H1 results) allow strengethening in liquidity after allowing for dividends. It's not super clear how this is written - it sounds almost like the base case includes an assumption of additional deals whilst in the first paragraph it sounds like it assumes no additional deals.

"We have run various model scenarios to assess the possible impact of the above risks, including an extreme

downside scenario assuming no further forward sales are achieved.

The cash forecast prepared under this scenario illustrates that adequate liquidity is maintained through the

forecast period and the financial covenants under the RCF would still be met."

4. So RCF convenants are fine. And they later say in a major crisis (likelihood "remote), they can reduce costs and sell land sites to repay RCF.

Conclusion: low revenue (lower than broker forecasts) for this year, next year, and possibly the year after, but based on secured future cash flows no concern to ability to meet liabilities and manage the RCF. Currently reduced flexibility to act to grow pipeline, which itself still seems impressive. The business model of forward selling, provided the busiess is financially stable, actually protects against over-extension and some of the problems other developers face. Forward selling should return - if interest rates remain high it is likely due to continued/uncontrolled/stubborn inflation & governmant debt/deficit increaes/maintenance suggesting inflationary assets like property will be more attracive than depreciating paper, while if interest rates fall this will be beneficial for Watkin Jones in forward selling (rose-tinted view either way).

So, does anyone have a clear view on why the market sentiment is currently so bad? Just low sales over next 2-3 years with lack of near term shareholder return? Or something more sinister?

Agreed, there are massive challenges to the BTR model for Watkin Jones, because of, but not limited to:

- high interests rate increasing the cost of debt used to by partners to purchase the property

- expectation for lower rates in the immediate future (causing purchasers to wait)

I re-watched managements Investor Meets Comany H1 results and a few interesting considerations cropped up:

- counterparty risk: identified as a key consideration for purchasers/partners when looking to do business with a developer, hence Watkin Jones focus on financial stability relative to other more developers in more precarious positions. When the the B2R deals return Watkin Jones should be well placed.

- forward selling of £400m to 2027, (with £150m earmarked for H2 2024). That leaves £250m 2025-2027, plus the deals that Oak Bloake has identified since then worth £182m. Meaning 2025-2027 around £432m "banked".

- record low completions and planning applications in what management say is the start of a new cycle, hence setting up a situation for growth in future.

- they have put a lot of work into cladding provisions, including third party independent reviews, with contigencies included on a per property and group level. This is understandable as it ties up a lot of cash. Should they be receiving much more interest on the c65m? Looking at interest received this equates to a return of less 1% interest? Or are provisions not able to receive interest in the same way?

From H2 Results Report: "In a typical year, the Group’s cash balance peaks around the year end, as we receive the final payments on student accommodation developments completing ahead of the new academic year, as well as initial

proceeds from the latest forward sales."

1. So cash should continue to improve.

"The cash balance at the year end is still important for funding our day‑to‑day cash requirements and for

putting the Group in a strong position when bidding for new sites."

"The Group’s revolving credit facility (RCF) is committed and has recently been extended to November 2025

to give flexibility to a renewal given the current market conditions. The total facility was reduced during the

year, given the anticipated volume of land acquisitions, and to benefit from lower non-utilisation fees. All

financial covenants under this facility were met at 30 September 2023 and are forecast to be met

throughout the period to 31 January 2025."

2. Is there a risk of convenants not bein met in January 2025? I don't think so, but can we know for certain? (Looking for a reason for the low share price).

Re-reading the previous trading update: "While the Group's robust net cash position provides it with a strong financial underpin for its committed spending requirements, it is nevertheless a limiting factor on the extent to which we can take advantage of market conditions and further develop our pipeline. In light of this, the Board is undertaking a review of a range of options that may be available to enhance its medium and longer term funding position, thereby allowing the Group to capitalise on a market recovery."

It does not sound as bad as I thought at the time. They aren't flagging any desperate need for funds, simply a desire to have access to funds to pick up more deals, especially while cash is currently ear marked for cladding issues. This seems prudent. I have a feeling this may be simply an allusion to pursuing a social housing partnership model similar to Vistry as this is becoming en vogue. There has been the recent RNS about the affordable housing deal in St Helens.

The main issues I see are: build cost inflation, student rent increases slowing or reversing, interest rate policy, greater cladding liabilities. With the cladding deadline in 2029, this removes a major concern that Labour government would accelerate remediation work.

Looking at Congyar, as suggested on ADFVN, they seem to be in a much worse position that Watkin Jones. Looking at thier accounts, with asset value impairments, recent raise, increased debt, etc it does not look good. Watkin Jones appears solid - but the statement about raising funds (above) obviously caused concern. If, as suggested in the statement, the funds were desired for growth of the pipeline but not continuation of normal operations then this is reassuring, especially given Watkin Jones' low valuation. Indeed, Watkin Jones would be profitable for shareholders at this current price if liquidiated today.

On student rents, it seems that major limiting factors are that the student loans have not increased in line with rent inflation constraining budgets, less international students, and less affluent international student (for example, analysis in The Economist stuggests that students from South Asian countries spend around 50% less than students from China).

On the unclear situation with student rents:

https://www.thebusinessdesk.com/eastmidlands/news/2087139-nottingham-student-rents-reach-record-high

https://wonkhe.com/wonk-corner/as-international-students-fall-rents-start-to-fall/

https://www.lettingagenttoday.co.uk/breaking-news/2024/12/build-to-rent-competes-to-provide-student-accommodation-for-first-time/

I think Watkin Jones represents a good investment at current level. They could face an additional risk of a write down of their held investment properties, similar to Congyar, in view of lower student rentals. But I think they are a completely different kettle of fish.

4. (continued) Grain has thrown more money in and slighty increased his holding in Distil. We can't know if this is supportive of Distil's operations, but given Distil's operating performance it is unlikey - it is more likely to be for another/mixed purpose(s), including (1) increased equity ownership indirectly in Ardgowan for eventual conversion, (2) increased equity ownership in order to "not convert" the loan and accept return of principal, close Distil, and stop dilution in Ardgowan, (3) given Grain's background it is plausible that many of Distil's costs (including direct, indirect, and "investment") may beneficial to Grain's own supply chain/other businesses, etc. Cooley's increased holding can only reflect a desire for Ardgowan equity ownership in my view as he has not direct ownership in Ardgowan currently as a far as a I know - nothing else makes sense. This suggests Cooley and Grain have spoken and the plan is for conversion to equity ownership.

5. I believe Don Goulding's participation should just be ignored given how the business has been steered. Similar to Grain and Cooley, investments can also be made for personal tax and investment considerations & this could be as simple as that.

6. If Distil's Ardgowan stake is worth £3m, then if we discount the value back then it's currently not worth much. If Ardgowan's value increases as an asset then Distil's stake will be worth more; however, this would imply that it is possibly in Ardgowan's future interest to pay back the principal rather than allow Distil to convert - because of Grain's position it is likely he can influence this decision in terms of what works best for him at the time.

Apologies for the rambling post. To be fully transparent, Distil is 88% down for me and represents less than 0.05% of my portfolio. At my holding cost price, it would represent less than 0.5% of my portfolio. I am saying this to make it clear that it makes little difference about what happens with it now, but still interested.

I believe Distil can only be considered as a function of its convertible loan to Ardgowan. What happens around this can only be really understood through knowing the minds of the major shareholders, especially Grain and now Cooley. I think it seems likely they will convert, but it Ardgowan is worth more than Distil's valuation then I would expect Grain to possibly try to influence a non-conversion (although conversion may still may sense). In the meantime, there will be continued dilution, which Grain and Cooley will participate in for personal investment reasons.

I am not certain what happens in the event of business administration. Would shareholders have any recourse to the convertible loan to Ardgowan? Of course the trading business could just stop and use the loan interest to pay any listing admin costs and lower staff costs or they will take the company private. As a shareholder, perhaps tagging along is tempting but the time to conversion is too long/not

In follow up to my previous comments posted on here on 23rd March 2024.

1. It is clear from results that Distil's business of selling various drinks is no longer considered in "run-off"; in fact, it is now a negative drain on the overall business. Revenues and profits are down, while admin costs have increased. Investment is unlikely to pay off. I do think they had a great opporunity with RedLeg but they weren't able to drive real success (reflection on poor, uninterested and unmotivated management). They cite macroeconomic factors as reasons for poor performance - when the business is valued at £2m and has small revenues it is clear these are not very relevant. I can no longer ascribe a neutral value to Distil's trading (drink selling) business... it is now negative.

2. As the trading business is negative, there is clearly an increased likelihood/near certainty of a near-feature raise and subsequent further raises. Cash is low and lower than H1 cash generation. Although there will be a loan payment re Ardgowan in H2(?), these is for a small amount, and may not buy any more time. So I regard a future raise as certain (so I'm suprised by share price movement today.

3. I still beleive the decision to investment in Ardgowan as good. After the loan period, Distil receives a return of its £3m principal. OR conversion of this loan into a 10% equity stake into Ardgowan (convertible at £30m pre-money valuation). No matter how much dilution occurs to keep Distil affloat, the whole entity Distil retains this ownership in Ardgowan - therefore I am not surprised and also intrigued to see continued to director buys (see next point). I think all plans related to Ardgowan production supercharging Distil's drinks business will take too long and not materialise - suffering from the same issues related to uninterested and unmotivated Distil management. Perhaps Roland Grain will change this, but I doubt he see's value in Distil's brands (he can't see past falling sales although perhaps his "distribution" will cause a volume increase). Either way, I think it is worth assigning no value to promises that Distil will benefit as a drinks seller from Ardgowan. I believe the only value in Distil is the convertible loan to Ardgowan. I still believe that they should have increased their investmentin Ardgowan when they had the change, and stopped investment in the drinks business.

4. Grain and Cooley have both increased their holdings since March (Grain entirely through raise participation). Perhaps they see value in increasing ownership due to the convertible loan holding in Ardgowan (which Grain also has a direct holding in after a £7.2m investment). However, with the poor performance of the business it may look like throwing good money after bad. We have to remember that their investment decision is unique to ours (continued).

There was a concern that the new Nigerian president due in May 2023 would modify the mining law that the government sometimes feels is too generous towards miners. In 2024, the NFG announced that it would only grant new mining licences that plan to process locally, create jobs and help local communities as the government seeks to extra more value from their solid deposits. In addition to previously announced incentives, including full repatriation of profits and boosting security, the NFG wants to make it easier to secure electricity generation licences. A state solid minerals corporation, offering investors a 75% stake, has been set up. A special security unit has been established to fight illegal miners.

In 1960-1970, mining made up 4-5% of Nigerian GDP. As of 2018 mining, which has struggled to attract investment and meet domestic needs thus forcing costly imports, accounted for $N7bn in 2021). The revenue increase was attributed to the “First Come, First Served” and “Use It or Lose It” in the licencing, helping to eliminate speculators and leading to the revocation of about 1566 minerals titles, activating many dormant licences and increasing revenue flow into the treasury

.

Nigeria has sizeable deposits but nearly all extraction is by a small-scale or manual basis, with the government missing out on valuable revenues. As of 2021 Nigerian mining licence distribution reflected this: mining lease 4%, small scale mining quarry licence 13%, quarry licence 21%, small scale mining lease 23% and exploration licences 39%. Supposedly, the minerals are closer to the surface meaning lower production costs and higher rates of return on investment.

Success at Segilola is key to attract other projects and investments. We are still waiting for a wave of foreign investment in mining to materialise. Barrick Gold and Rio Tinto expressed intentions to get involved in Nigeria’s mining sector. We have seen recent changes in big oil’s relationship with the Nigerian O&G sector but it has been commented that they are likely to return when in need of proven reserves.

In 2021, there was a review of the Nigerian Minerals and Mining Act 2007 to bring legislation into uniformity with global best practices, limit the role of government to that of regulation and foster the private mining sector. Further steps included, establishing precious metals buying centres to spur more small and medium scale mining investment and commissioning refineries. The same year, Nigeria retrieved its colonial geological data from the British Geological Survey (BGS) to build an electronic geodata archiving management system, Nigerian Geo-data Centre, at the Nigerian Geological Survey Agency (NGSA) to provide early access to geoscience data for prospective investors on potential areas to target for exploration ad mining. The Mining Cadastre Office (MCO) was repositioned to promote transparency in mineral title administration and streamline processes, such as applying online to obtain licences and leases (via EMC+, a new digital mining cadastre). Six MCOs were established in separate geopolitical zones. Of a 44 mineral endowment, 7 were selected for immediate development, including gold. The Artisinal and Small-Scale Mining (ASM) Remote Sensing Monitoring System continued to regular and support ASM activities through the NIMEP.

The NFG continued to try to make the mining sector attractive to foreign investors through customs and import duties waivers for mining equipment (and plant and machinery), tax holidays, free transferability of funds, permissions to retain and use earned foreign exchange, capital allowance of up to 95% of qualifying capital expenditure, reducibility of environmental costs, and 100% ownership of mineral properties. In 2022, the Lagos Commodities and Futures Exchange was licenced to trade gold targeting globally acceptable pricing and quality (the first time the metal has been offered on a bourse in Nigeria), aiming to diversify the asset base of the capital market, improve government revenue sources, broaden opportunities for Nigerian stockbrokers and diversify trading revenues. The exchange (remote and physical trading) was approved 3 years prior but it took time to build the systems to support commodities trading, including access to insurance, warehousing, customs, a credit bureau and banks.

As of 2022, NIMEP has on only been successful on a small scale so the plan was made to auction it to a bidder who will continue to invest in exploration. There was more successful in incentivising small-scale/artisanal miners to establish cooperatives (400 established by 2022), involving the recording of biometric data in order to be given access to cash at low interest rates. Furthermore, licenced buying centres, both government and privately owned, have been established where these miners can sell their material at a fair price and lease equipment (which can later be purchased). A Community Development Agency helps promote policies ensuring that the communities can prosper through new mining.

Just sharing some of my research that has helped me become comfortable with investing in mining in Nigeria - hope it does not count as spamming the board. I have removed sources (happy to provide these) to reduce word count.

The key point is that the development of Nigeria's mining sector will take time, has happened, is happening and continues to happen, but has widespread support and Thor's success as poster boy mining project is crucial.

Successive administrations have pledged to grow the mining sector since 1999 (restoration of multiparty democracy), with some legislation being more than decade old. Developing the mining sector has been an important component of Nigeria’s economic policy since 2015; at the beginning of the government administration in 2015, the Comprehensive Roadmap for the Growth and Development of the Nigerian Mining Sector was created. In 2016, the National Integrated Mineral Exploration Programme (NIMEP) was designed to rapidly accelerate geological data collection to de-risk the sector an attract investment. Following the commodity price crash of 2015-2016, in 2017 the World Bank provided $150m to the Nigerian Federal Government (NFG) to kickstart non-oil sectors, especially its neglected mining sector through helping the NFG formalise its artisanal mining sector, improve environmental practice and support infrastructure improvements for larger scale mines. In 2018, there was not even a single RC rig in the country and Thor Explorations were due to receive the first in June 2018.

In 2020, the NFG intensified efforts to liberalise the mining sector including mandating the Central Bank of Nigeria to buy all gold from local miners at the international price, with the aim to support gold mining and prevent middle-men ripping off miners, curb smuggling, and grow the industry. Other measures included starting to compile a database of artisan gold miners, granting tax holidays (initially 3 years and later extended to 5 years) to mines, customs waivers on imported mining equipment, and allowing 100% ownership for foreign investors. There were concerns that the policy push for mining was “unrealistic” because of ill-equipped infrastructure to support major mining operations, insufficient geospatial data and limited enforcement of regulation (Mining). In addition, gold smuggling remained a problem, especially in the northwestern state, Zamfora (where it is smuggled to Niger and Togo); due to this banditry, the government banned mining Zamfora in April 2019 with the plan to lift the ban in March 2020. Gold is also smuggled to Dubai and Nigeria has sought help from the UAE around preventing this. Some informal mining operations fund armed criminal groups operating across Nigeria and occasionally Chinese nationals are arrested for illegally trading in minerals. Much of the strife is near the Sahel or “coup belt”, while Segilola, located in the South of Nigeria, is away from this and unaffected

Latest Share Chat

Member Info for bobbyaxelrod

Followers

Following

Posts (Last 30 Days)

Posts (All Time)

Last Post

Member Since

Share Chat Post Distribution (Last 30 Days)

Activity Log (Last 30 Days)

Latest Share Chat

Member Info for bobbyaxelrod

Followers

Following

Posts (Last 30 Days)

Posts (All Time)

Last Post

Member Since

Share Chat Post Distribution (Last 30 Days)

Activity Log (Last 30 Days)

Please enter at least 2 characters

No results found

Search results

Recently viewed

Trending