Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
We are well oversold on this news for sure. The scaremongering has successfully taken money off some poor PI investors and they have lost some fair value as a result. As I said the professional price one year ago is the best placeholder today at c 250p due to massive strides of the company in 13months offset by this growth related little bump in the last few days that still will likely inform more positively on diversification advancement very soon...when we get all the rationale amd news that John has to say something about in coming days
Hi Thordon, welcome back. I think John has to reveal more of this cards in the next few weeks during the full year financial discussion and I agree things don't add up at the moment. We have an ITX puzzle to solve => “when does -1 equal +1 for ITX? The timing of this arguably very preventable customer loss decision by the BOD is intriguing, counter intuitive and strange all at the same time. After sleeping on it, I have come to the view that there must be a key strategic business reason for the BOD decision and it’s a reason that can only make sense from a major ITX product diversification opportunity perspective (e.g. functionality / value added product v’s price competition lower value added product supply). The company must be on the verge of something important that is yet to be revealed in its diversification journey is my take on whats ahead otherwise it was so easy to offer the marginal customer another 6 months of GM positive product supply.
Good luck with investing outside the world of ITX SI. If you miss some pivotal diversification news you know how the share reacts so may miss out. At least you are knowledgeably abstaining until post January. As you say you want to keep an eye on things so maybe you will be tempted back sooner should John have another curve ball in his pocket in the next 9 months!
SI - that's just because you sold out and want to re-buy at lowest entry price and I disagree with your assumption no news will be forthcoming upside to change to SP materially upwards until 2025 - thats a crazy suggestion given that small buyer runs can change the SP markedly.
Adding point 7 just come to mind for completeness; in John's recent share soc presentation (I recall but could have been another one) he openly stated and discussed with a delegate that he more often than not cannot reconcile the share price performance to the BOD's view on underlying business performance characteristics/market opportunity/progress. The risk situation of the existing leaving customer was known at the time clearly since many rounds of negotiations had been taking place and a stand-off was in place. So for him to say he has never seen a better outlook for the business over the last 3-4 years then this must be a strong factor to consider in his positive state of mind and ability to push out a under-performing customer relationship. Im sure John will provide more background and context in coming days/weeks.
With respect to your comment Paris as ever there are many deeper details on this matter and it is not all due to the BOD (and may in fact not be a BOD contribution issue at all). There may be a contribution from any of the below factors amongst other things that I am sure others may comment on:
1. Limited free shares that are being traded sometimes with 'group think' creating bigger dips of oversold and peaks of overbought around the mean and at the moment there is a greater possibility of the former;
2. Some PIs/investors not knowing (a) the wider value of longer term R&D strategy and sum of the parts of the ALL the
company's commercial investment assets and (b) Mgt's tradeoffs when dealing with portfolios of products and R&D assets (ITX is not quite as long an R&D gestation period as pharma, my subject matter area, but obviously has similar features and traits squashed into a series of, say, 2-3 years $ investment cycles).
3. UK general short termist share investment culture - it looks like this is at a height currently, just before interest rates relax to longer run norms again (that's one of the reasons why we now have access to N American PIs through the share restructuring efforts, so await future benefits from that as and when the coin drops on our undervalue situation here State side).
4. UK PIs - overly focused on here and now revenue / profit metrics and some sellers throwing the baby out with the bath water over-selling. Also not helped by BoD not wanting to over - guide the market on upside potential (prudence that lends itself from traditional accounting practices).
5. Lack of consideration of most here of the last rather solid professional investor round given these professional guys had access to more inside knowledge of future outlook/opportunity. Arguably, the 250p (5p old money) more than a year ago is still a good benchmark now due to good diversification progress since then, offset clearly by the leaver marginal customer profit impact in recent days.
6. ITX cannot be held hostage to shareholder fragility to run their day to day business - they have to focus on long term shareholder value / creation and that is what they appear to be doing and John and his team have just proved it to you - if the BOD had not ejected this 'marginal' customer in 6-12 months time some here would be annoyed and frustrated that key diversification customers failed to order due to supply chain resilience concerns/capacity. We just dont know all the facts right now. The BOD have full knowledge on the business we do not as small minority investors; we need to trust their decision making and read the tea leaves as insightful outsiders.
Other thoughts welcome Paris - I dont mean to cut you off in order to get the best of all of us on our ITX BB which has been very good to date
IMO The bottom line is that we deliberately dumped a marginal customer for reasons explained re: profitability. The fact the Board did this indicates a position of strength in the wider portfolio and progress for diversification. We have yet to see how that plays out in coming days in the announcement but for me the intrinsic worth of ITX assets is above current share price, but do your own research, on the science , patented chemistry and recent data/CEO messaging.
I've just also noticed another new sales category in the Broker forecast detail - its called mysteriously "Other" and sales commence this year at $0.25m then 3x upwards in 25F, then doubles again in 26F. So something is quite close and presumably the Broker has been quite prudent at this point with the forecast est. since its a new line item. It will come from the company is my view (subtle messaging to Broker on upside).
Some more key information and thoughts to take home from the Brokers note based on further review:
1. Interestingly ITX ARE still going forward with a new production plant - that's strange isn't it given a large loss in production volumes in 2024! The capex projections for 2024/25/26 are in total c.$4m which compares to $0.8m in the prior 3 years. 500% increase in capex with a fairly low capital intensive business. Big growth plans are ahead (based on strong pipeline and smiling John on recent interviews) and as I said before in my plant capacity note - there is a near term capacity constraint (scarcity issue) and the timing of freeing plant capacity is absolutely pivotal to ITX confidently assuring new customer orders and diversification wins with the transition to higher volume diversified products (e.g. superabsorbants/paints/leather etc)
2. We could not lock in the plant for the whole of FY 2024 to a business customer that was delivering, say, 20% Gross margin - less than the average for FY22/23 for the business as a whole of c.29%. In the case of this 20% GM it is unlikely given SG&A and tax we would bearly scrape, say, a PAT 2-3% at best => low margin busy fool volume.
3. After spending the c $3m on a new plant we are still left with $c2m cash in BS in 2026 when we are op. cashflow positive.
4. Broker note made a point that the "customer" - assumed as "Dr Greg - Dear Sensitive Home" from another poster detective (which seems probable based on their web site comment around plant science and linkage to multi carbon based chemical backbone). Broker mentioned said merchandiser was trying year on year to push back the ITX commercial terms to the point of unreasonableness - The outfit seems to be quite egotisticially driven from their web site and I believe they have cut there nose off to spite their face by terminating their customer offers in favour of "detergent concentrates that use less plastic"
"You may have noticed all their products are displayed as SOLD OUT. This is because they
are making an exciting transition from diluted spray and detergents to concentrates." Good luck Greg when you lose 100% of your existing branded product lines very few businesses actually survive in the long run especially with a 6-8 month supply issue before the next launch of different products => massive loss of confidence in company
4. Price target from Conaccord Genuity is -12% down 400p - 325p - Our share price is more adverse down at this point. I still think investors don't really understand that we have significant sunk cost investments within 'In process R&D ' that is about to start selling and has reached almost launch readiness (shoes/paints/super a's). These assets have no revenues or profits but must have a material value. My guess is that its at least GBP25m (if someone wanted to step into our shoes so the speak). So the Broker -12% reflects these R&D assets and counteracts/dilutes the short SP term reaction in my view.
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Dear SI - see my note earlier - re: portfolio considerations and scarce plant capacity profit maximisation - I really don't think this is as bad as you first may believe. If you have sold some stock I would buy it back and given Johns Proactive Interview late today!
My view is we don't have all the jigsaw pieces of this decision as yet and the circumstances will be much clearer at the date of the end of year announcement (mid April) together with the important wider pipeline outlook perspectives we know are coming.
Like you all my heart sank a little this morning when hearing the news. However, after more thought I believe there is a very good and sensible business reason for ITX to turn away these weakly profitable or marginally loss making revenues due to future limited manufacturing capacity (ie. our critical profit limiting resource maybe coming as early as 2025). Plant capacity is our current scare resource in the next 12 to 18 months before we can commission a duplicate facility in Europe and transfer all that is needed and train new staff. Based on my knowledge of business economics you always profit maximise based on your product portfolio and the principal limited resource constraint. For us it's our physical plant capacity and to a certain degree plant operator workforce yet to be hired. So if I am right, this unusual decision is linked heavily to other portfolio contract constraints that means its perfect sense to turn away some 'skimmed milk' today for better tasting 'double cream' during later 2024 or early 2025. If we maintained status quo supply we may find ourselves turning away or significantly delaying a much better profit generation contract. From this decision there is alot going on behind the scenes in my opinion that never gets public viewing. If there are more mgt. sounds made about the European facility in the next few weeks, I believe I am correct and the SP will rebound accordingly. As for the quantum of the SP drop. Its currently non intuitive given the value of each major diversification channel incl. Superabsorbants, paints and leather which must each represent a minimum of say USD10m of risk adjusted value given commercial/ technical progress to date. My thinking these should represent approx 50% of the ITX enterprise value right now after deducting the free cash of say USD 6m (working capital / capex adjusted excess). So work out the numbers as they don't stack up at the moment. Once more news flows I think we will get the bigger picture context. Plant constraint could be the key missing decision perspective. (but as ever DYOR).
We should not maintain 'unhealthy profit' sticky customer relationships thats the point here. We have better fish to land in a large ocean now so a bit of spring cleaning of our portfolio may have been needed to optimize future opps/profit delivery and reduce loss making contracts!
Forgot to mention:
9. Slick new ITX web site in c. 8 weeks time so early May should be launched - will bring further client adoption/conversion benefits due to greater external impact - we are now here to stay as a major ECO functional ingredients business with some compelling new marketing strap lines like we are seeing recently being trademarked.
Thanks AJP08 - some interesting added info. in here for me:
1. Only $2m needed if they wanted to build a new plant - v. low capital intensity and minimal electric used in process
2. So many parallel new product avenues are here beyond detergents and hygiene - many significant - new ones for me were crop protection and industrial water treatment
3. IP moat - 16 families blocks competition and locks us in to brands
4. Retail channels (now ubiquitous ITX in most key channels)- very diverse with >170brands. Amazon - large mail order access channel
5. We have Reckitt as a client also which I did not know - another massive cleaning/hygiene global player
6. Big bonus focus onto much higher new vol markets for 24/25+
7. Now we have an artistic painting and shoe/ leather items to physically demonstrate and showcase to ITX clients - impressive.
8. John 's words - "very bright future & very exciting" so my take is that we are really on the cusp of major diversification opportunities
Well for every seller there is a buyer (somebody took GBP 10k in one slice today) so someone is picking these up on the cheap as we are heading into the early April announced results and 24/25F outlook disclosure which is likely to tip more fuel onto the SP in the context of the wider diversification ingress (leather/super abs etc). The only reason there is this final little taking profits undulation in the SP dynamics is that the share was very well oversold in 2023 with the big uplift coming recently only toward 'historical average'. However, with the c. £2.50 (5p old money) large financing more that a year ago now and much further excellent ITX business delivery 2023/early 2024, that professional benchmark price (2023) must now be looking a pretty damn solid reference point for investors one year on from that investment.
It's the near term revenue line growth expectations and how many new key supply accounts we are winning that are together the key value drivers for me rather than 2024 profitability per se. Great profits will flow naturally from continuing diversified sticky client access/channels. So the status of mkt traction across ITX expanding portfolio is what I will be interested in in the forthcoming results discussions. This will spark new investor interest/demand and potentially wider corporate activity.