The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
Spacerat
Tech companies were massively overbought a few years ago in all sectors, not just hydrogen.
Then reality hit with the downturn, especially in China, and high interest rates.
Now I think that tech companies are heavily oversold and the next move will be a general recovery in valuations.
However, we need an improvement in the macro to see this happen and that always seems to be just around the corner, but we never quite get there.
Yes certainly a hold now but not a buy.
SP is likely to remain around this level until after anticipated equity raise that will likely be in H1 2024.
After that existing investors can review progress and asses if its worth averaging down.
Awful results - but we expected that.
Talk of a ten year plan and better funding - all good.
CFO to go - a relief to many.
Solvent to H2 2024 - much better than anticipated.
Prospects - actually looking good.
Remains a hold.
Trading results better than expected.
Most significant development is in the other RNS with the change of Weichai representative on the board.
The new man is much more senior and a REAL tech expert - sounds very good to me!!!
I don't see the results having much impact on the SP - maybe a short term dip because trading is likely to be lackluster.
I think the cash position will be OK - the company is excellent in this regard.
Its news on the future that we obviously need, but I think this will still be pending, although we might get an encouraging update?
The problem with AIM is that there will always be conflict between the BOD's and shareholders because of dilution.
The directors job is to grow the company by raising equity, but this is at odds with the shareholders wishing to keep value in their shareholding.
Underlying all this is the abject failure of the AIM index.
Compared to the FTSE 250 that has grown in value by 315% since 1996, AIM is down 27%. It seems that with a few notable exceptions its not until a company moves up to the main index that the SP really accelerates.
So basically AIM is just a punt - a series of small investments spread over multiple companies will probably give you one winner that will eventually deliver good returns but accept that many will end up like EQT in the doldrums for an extended period of years.
It may be better to leave the current BOD in place to sort out the current problems and bring the business back on an even keel.
Then questions about future leadership can be answered.
Sometimes the devil you know is the best option.
SloppyG
It could be that they have already refinanced their debts to reduce payments in the short term.
I would have expected more strongly worded warnings in the last RHS if there was any danger that their financial situation was terminal.
This is still a hold in my view.
Simms
Foxyjoe talks about a burn rate of £400k per month, that doesn't seem unreasonable and could easily be managed for the short term even with the restricted revenue.
Also as you say, they probably still have around £5m left to drawdown on their loan.
Most of the recent bad news has related to money wasted on going nowhere projects rather than hard financial hits - historical now.
My guess it that the actual finances are not much different to where they were in June at the last update.
So credibility may be shot but this is still defiantly a hold.
So cash flow is very tight, but how tight.
The company had loan facilities totalling £12m in June - apparently it has already drawn £5m - maybe more.
The following was in the last RNS
"In addition, French client Idex's France MDC project has rescheduled the completion of front-end engineering design work to December 2023, such that orders will not be placed for equipment until early 2024 and delaying anticipated revenues from this project. Furthermore, client projects in Belišće (Croatia), Livadia (Greece) and Wilseyville (California, USA) are experiencing delays with securing full funding, thus delaying revenues previously expected in Q4 2023 into 2024, subject to securing such funding.
As a result of these events, and in light of the Company's publicly announced rationalisation of other, legacy projects with unmitigated risks and liabilities, the Company has updated its overall FY 2023 revenue forecast to €2 - 3 million."
Cash spent on the cancelled projects is now irrelevant - its gone unless the courts say otherwise - but a least no more cash will be needed apart from legal costs.
So going forward - do they have enough cash in the kitty to survive until they start to get more revenue in 2024?
Off course they need more cash to grow, hence we will inevitably see another equity raise and more loans.
If they can survive short term, I think the company does have a future.
For a larger company, like Wood for example, the risk involved for the UK projects would have been acceptable and probably normal but for a small company like Eqtec this was clearly not the case when looking back in hindsight.
In mitigation, I think the BOD probably thought that cash would be flowing in for other projects by now, therefore, the risk would be covered by higher cash flow from elsewhere
But the poor macro with higher interest rates, higher construction costs etc has certainly taken its toll post Covid and added to their error of judgement may have cost the BOD their business.
Making an error of judgement isn't against the law.
If they had pulled it off, we would all be sitting pretty, but unfortunately more often than not it doesn't work out that way, especially when there are so many players involved.
BurrenBoy
Its nothing to do with honesty or otherwise.
Its simply that the cash flow isn't there - that means there will always be the threat of dilution and the SP falls.
More bad news lowers the SP even more and gives dilution more impact.
Its the same story for most AIM companies, especially when the macro is bad, hence the 80% fall.
I know what you are saying Warren, but try to focus on the company not the SP.
If you look at the stats the AIM index is down 26% since it was formulated in 1996 and the FTSE250 is up 320% in the same period.
Many AIM companies have moved up from AIM to the main index and I think ITX has the potential to follow them.
Its these companies that grow out of AIM that are the winners and the SP ultimately grows with them.
My guess is that the way they delivered the bad news this week, in two devastating RHN's, was to clear the decks for a clean start.
The interims will signal that clean start with hopefully good news on short term liquidity.
The BOD must realise that they are living on borrowed time and have to turn things round, so I would also like to see a structured plan for how they plan to do this, with a fully committed timetable.
Clearly the high capex projects are a failed idea - now its time to let the tech teams at Eqtec do their bit and roll out fully funded projects quickly and efficiently, lets see how good this tech really is!
Totally agree oz
https://www.youtube.com/watch?v=OZBpu67tbS0