Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
On HL WIP. If SGH are prioretising cash generation then It hardly suggests HL cases will be the priority. On escrow - SGH will have a go - so it aint all over . Mel
Oh...what a surprise, It is obvious from their presentation SGH is generating cash by scaling operations back a bit. I wonder if Chairman Rose thought of that too? Mel
On SGH price collapse. When QPP sold PSD it had £45M debt it cleared. Common sense tells us that at least one months invoices could be factored. It it had kept PSD it would have needed aprox £20-25M additional borrowing to Process WIP on the books + HL WIP. Therin lay the problem. I have suggested that to keep on going if banks were saying no, it would have needed £40M finance somehow ( £20m bank £25M expensive hedge fund/mezzanine finance?). By reference to SGH research we can be pretty clear that 9 fig £ profits will be the reward when WIP gets to the invoice stage over the next 2 years. SGH now has the problem if you can call it that. It needs to finance the Work in Progress until it is net cash generative. It has we assume arranged enough borrowings to cope and common sense suggests that, after buying the portfolio at a knock down price, it will get to the cash generative stage as quickly as it can......and start banking ongoing 9 figure £ profits. Eddison is suggesting 66% EPS hike in the year to June 2016 and a further 23% in 2017. If I was in charge I would be using provisions to smooth that rise of 89% . 40% EPS rise in the next 2 reporting years with a divy yield of 4.4% might be a good place for PI's. In a couple of years SGH, according to Eddison , can be expected to bank A$ 592M ( £282M) ...giving it , at today's SP a forward PE of 3. 16% of SGH is held by shorters and they can only have their evil way if there is a weakness. Well the weakness is the SGH borrowing ( Hugely bigger than QPP needed to keep going) . If they can bank £282M PBT in 2 years they can no doubt pay down some debt. Lower debt and much higher profits will put a different perspective on the SGH debt. http://www.edisoninvestmentresearch.com/research/company/slater-gordon I have no doubt the timing of any improvement in the SGH will be unpredictable and in the control of institutions and stake holders manipulating the SP . Nevertheless with a PE like that and EPS growth predicted, I kam pretty sure I can be patient and wait. Meanwhile the Turnaround geniuses have turned their back on ongoing 9 fig profits and a good steady business model, and unless they are incapable of cash flow drafting - we dont know why. Well we do £4M was an easy pick. However the duty of directors is to look after widows and orphans like me ( well I am not ...but you know what I mean). Not push us off a cliff. Mel
Cant help thinking the clever strategy would be to help shareholders to believe there are prospects. If there are, then we are in catapult territory. If not ........ Mel
So we are about to receive - £414M & £90M retained cash for business development. If Watchstone to be independent, probably a good idea. & £40M HL claims £'s conveniently not promised for distribution to shareholders Plus £40M in escrow - which SGH will have an interest in pocketing . Lets manage expectations down to £20M Let us say QPP sees half of the Escrow £'s and is distributed to shareholders. I shall be pleased with that 5p. I make that £564M and current market capitalisation is £450M . Let is take the capital distribution of £414m from £450M . That leaves what is left valued at £36M. Not good for shareholders is it? However consider the following. --------------------------------------------------------------------------------------------------------------------- WHAT IS AN ATTRACTIVE CASH SHELL? ....a company with oodles of cash not deployed in commercial activity ... developing trading activity which is nearly congruent and certainly complimentary to a bidder. .... a company with a subsidiary which has value and which does not fit in to future strategic plans .... a company which, if acquired, can help defragment an evolving market...and help a bidder build market share. Are there companies out there in the same field with supernormal PE's . Are there companies which would give their eye teeth to steal a march on competition and get bigger quickly? Conclusion If QPP keeps us in the dark for much longer there is an amazing opportunity for a predator . Of course Himex and Ingenie may just not be as wonderful as we hope they are. Nevertheless , as a battered shareholder , I am having a look in the wings to see who is there. If they are there, they would be daft not to have a go at defragmentation and the evident undervaluation of QPP rump may have an end in sight?? They could make us richer and pocket cash and give us shares in a rocketing future. Interesting! Mel ( Stirring!) ( Still sticking pins in the wax dolls of those who have unnecessarily destroyed half a billion £'s value by failing to attempt an easy Turnaround strategic plan. All they needed was " an open plan for new brooms"; temporary extra finance fro 20 months to finance WIP and a 15% scaleback....and a bit of time. Well they have had 10 months and by now it should have been green shoots time. But £0.5B value has gone to Oz)
£ = £1.63M
Well I had over exposure to QPP and have now sold half my shares and have a big ? for the rest. The 10% distribution reduction is a breech of faith. Remember the near absolute promise at the EGM? QPP could just have a great future ...Trakm8 ( Data mgt/telematics has rocketed to PE of 55 ...Profit after Tax to Mar 15 = £1.69... Market Capitalisation £86M). It has AA contract and fleet Mgt. and won anew US contract It is a minnow with prospects. So is QPP. However I cant read it. I do know shedding some of the fixed costs is likely to be expensive. QPP with £10M PAT and a similar PE would = £0.5B. It is exceedingly unlikely to be that good, but HL income for 2 years wont do any harm and in time? One obvious factor is that QPP could be regarded as a ripe cash shell. A part paper bid could allow a bidder to end up with more cash than prebid, clinics co to sell , and HL income. In fact it is odd that it has not happened. If there is a company sniffing about , it is odd that the SP is languishing. Mel
Myfairlady RU sure that is the current intention. However those with all that wonderful probity could have trotted off by then. You know, smallco shoudn't have such expensive overheads. Mel ( grieving over 10p less)
Mullins It may be prudent and sensible. However the cornerstone of the argument is based on at least a £1 and a probity flag , and not 90p plus the balance of what SGH will try to obtain from the escrow account. They cant promise 10p until it is 100% clear what will be in it when they can distribute it. You are right a coherent strategy and a clear business plan would help. They have had their feet under the table for a long time now. Saying precisely nothing is not good. Mel
Is it near the area of Orkney called "Tw*tt"? There is a farm there called B*lloquoy. This is not made up. Mel (As always full of really useful information).
can not promise the monies in the escrow account. If there is a business in there which needs cash to fly, as an investor that would be fine. That is not what they said & in my book the probity flag ............... The depressssing bit is that a sensible Board would have balanced the RNS with some positive pointers. Has Joubert really been appointed as a NED? Mel
Addinckt I have been on both sides of deals/arguments with lawyers acting. Bright ones. Lawyers on top of their game. Paid knee trembling amounts which make Cornbin's views seem quite reasonable. Not one has seemed to take on board what market funding and profit multiples do to the value of an entity. They aint twigged that 2+2 +2 +2 can equal 20 sometimes. I find that odd but true. They dont understand normal accounting rules nor have they a clue what accruals are, so used are they to near cash accounting. Since they dont get these things ( they are gods in their own fields so what the bean counters ( who also understand management accounting) do is beyond them, so long as there are enough beans canapes and champagne. . The odd thing too is that few high st bankers in the lending business get PE ratios either. There are bound to be exceptions. But if you don't get why RT's disruptive model worked, and are a lawyer, It is a bit like those who stood around the first steam engine and asked what it was for.......or cavalrymen who used to put horsepoo under tanks when they first appeared. There are little additional clues. RT reckoned the overall Gross margin QPP would obtain was 44% ( legal practice norm 30%) ...and they were cherrypicked/tested before taking them on. QPP only had 35M debts to clear post sale. 35 relative to £300M-350M ( ????) WIP...... could be anything from £100-£140M profit contribution in there. Looks like QPP needed £30M ( best to arrange £45m for safety) for a year ( best make that 18 months for safety) to enable it to kick most of its debt into repaid territory. SGH's clever trick has been to arrange plenty finance to do the job. All that I am contending is that arranging the extra £45M for a short period should have been within a new leader's grasp. ( We punters didnt know the debt level until after the sale, so it wasn't so clear and obvious before the sale. They might have had high debt. QPP did not) Mel
I dont know about anybody else but i am assuming that the release of information which enables us to see numbers contracts progress and a future will be good/great news. It just might not be the case. If there really is good news it is material and material news ought to be out there., The bit which worries me is RR's lack of knowledge about company product/stragetgy. 'Spose one might lose interest . after £4m . Its good to have great probity, but if someone is £4m up would be good to see a couple going back in pour encourager les autres. . Have not seen him investing. Is he really planning a future ? Are the implications that the residual business has been on the back burner and no gogetting goforward? It is a lot harder to build a co than sell it. That said it is just possible that a new owner with rapid growth in mind might be just the ticket . Mel
Anyone thinking trollies are being lost, might have a quick peek at TRAK ( data telematics minnow which has AA and now big US customers) Mel ( In liking geometric progression sp rise there mode)
Crikey AEM. Would love that, but reverse engineering that , with the no of shares we have , even if you assume a TRAK like PE of 40 ( big if), would imply an expectation of 10p earnings per share. C. £45m group profits after tax + say £100mfor cash in balance sheet. Around "£2b " market capitalisation. I didnt get where I am today by knowing anything about the future. Mel
Phrontist Just look at the massive debt SGH has arranged. QPP needed a small fraction of that for 18 months. With the new probity types on board, which hedge Fund would not have offered additional £40m lending ( with an interest and equity bonus giving return of 30 %) £13 M cost of banking £150M conribution to profits over 12 years - trivial. £1b market cap - almost certainly. Shorts back off and take profits when weknesses are dealt with. mel
Phrontist It somehow was obvious that shorters would pick on the marked increase in debt and drive the SP down. U are right......I rejected the notion of SGH until the shorters had had their evil way. Mel
Sorry much lower quantum of finance than SGH had to find. Mel
Phrontist Any irriot could see that the QPP inherited WIP would suck in cash before it spat it out again. It is the same in any business which increases its work in progress. (an extreme example- Imagine building a dam - all it does is suck in cash until it begins to generate cash ) Key here is that SGH has arranged funding to see it through ( and we assume QPP had been inept and had not) . If SGh's plan is to scale back a bit ( 10%? = £30 M cash need reduction) volume throughput, it can assume a contribution to profits of around £150M, less finance costs, over the next 2 years from QP's WIP. Remember SGH has its original profitable trade. Eddison is predicting an Earnings per share ( ie after all costs and tax) increase of just short of 90% in 2017. I am a dutchman if SP does not treble sometime in 2017. My point all along is that QPP could have scaled back by shedding some of its WIP - arranged expensive short trem mezzanine finance /bank or bond funding .......and worked through the WIP to profit and cash generation. Even if the plan had been to shed PSD in time, it would have been a far stronger negotiating position if the sale had been delayed by a year. So then .....ah but it was in trouble and mincing towards liquidation I hear y'all say. Trust me - as debt clearance post sale was only £35M ( although a bank might have played awkward) there must have been options for financing a couple of cash flow. If QPP had had £100M debt the bad bit might have happened. It didnt and financing QPP through the lumpy WIP would have had a much quantum of finance than SGH had to find. Mel
Phrontist. Perhaps you should review the Edison research on SGh which points to 89% PAT uplift in 2017. That uplift as it works through the WIP and the cash generation should enable debt reduction...which in turn should eliminate the perceived weakness of high gearing. shorts dont like weakness elimination. If Eddison is right that should lead to higher PE . From where I sit , it appears that SGH's PSD purchase will prove to be materially accretive ( although I hate that word) over 2 years. They would be mad not to scale back throughput by 10%. Not difficult. The accretive bit, reduction of WIP coming point to a 200-300% sp rise possibility ( Probability) over 2 years. SGh is doing nothing that QPp could not have done. Pity. Mel