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Resilient H1 results under the circumstances. Cash is lower as they paid down some supplier liabilities but no effect on real tangible asset value. Dividend and good outlook maintained for H2.
I see companies like this as dealing with cyclicality in two ways. You have the general economic cycle to contend with but also, within that, the product cycle of the industry. Once in a while a company like Character are going to hit a hot product and have a bumper profit year of 10-15m. When that happens you'll double your money from these prices quite comfortably. The only question for me is whether that happens next year or in five year's time. The really attractive thing about Character in particular is that the balance sheet is so strong that there is almost zero threat of debt or dilution between now and then.
My apologies, you are correct, I should have said dry bulk rates. I believe the price movements have been similar nonetheless. Even if not quite as dramatic.
Yeah all looking very good. Great that H2 delivered on the promised margin improvements. Gives us an annualised PBT run rate right now of 6m PBT if you assume a continuation of H2 with no growth.
Considering they made a significant acquisition mid period that is performing in line with expectations then we should easily exceed 6m PBT not including any organic growth.
The major caveat remains that these aren’t positive cash flows until the capex program is completed.
All in all a great story so far that is being executed well. Nice to hear them trumpet the moat they have with regards to barriers to entry for any newcomers. Genuine moats are hard to come across in small caps but I believe ADF has a legitimate claim.
Probably worth noting that it’s not just the coal price that caused them to turn loss making, it was also container rates. It’s been well publicised that these are back at or below pre Covid prices having increased ten fold at one stage
Combine these two facts with the increased tariffs that the government allowed during Covid and OPG could have a really bumper period. Obviously you’d expect the tariffs to drop back once the coal/container prices are recognised to have settled but that should still see pre Covid profits returning to OPG.
It’s slightly concerning that they haven’t updated the market in so long. However, given the ridiculously low market cap, the potential for an upside surprise seems very much on the cards to me.
Almost 20% onside already plus some warrants to boot.
NAV is £8.5m with the put option carried at only $2m so when that lands true NAV will be more like £14m.
Over half will be in cash by that point so we do need to get some investments out there working for us.
Hopefully they can all be 20% onside by the time they’re announced!
Bottom,
What you’re saying would be true if Finncap were only giving away shares. However this is not the case. They are acquiring the assets and (hopefully!) the future profitability of Cenkos for the £20m or thereabouts worth of shares they will be issuing.
As of Cenkos’s most recently published results that would equate to about £16m of net tangible assets. My own conservative personal assumption for their future profits is about £2m annually. That’s in the eye of the beholder of course but I think it’s reasonable given the historic profitability and the cost savings that will arise from the merger.
£20m of shares for £16m of net tangible assets plus a couple of extra million a year in profits? Not bad if you ask me.
So as of last night orchard was trading at 4x post tax profits, 0.46 tangible book (including non-current loans) and they repeatedly have negligible impairments due to deal structures in place with insurance companies.
Crazy, crazy value on offer.
Back to 7m market cap
Considering that there is 5.5m of cash, listed shareholdings and the Ideon stake (not listed but valuation verified by 3rd party investors)
That means the Put option on our 5% of LS, the ownership stake in Golden Sun which has confirmed funding to build and the outside chance that we negotiate favourable terms for the government’s 15% is all being priced at 1.5m right now.
The Put option alone is about 8-10m based on PEA numbers. Worth noting that, as I understand it, this is a contractual obligation that we can impose on Ascendant. As such the only risk to receiving this money is the requisite solvency of Ascendant at the time of the DFS.
The Ascendant VP gave an interview last week in which he intimated that Sprott would be willing to offer the money if it came to it but Ascendant are looking for more favourable terms elsewhere. Point being that funding for our 8-10m will be in place one way or the other. You can see it here https://m.youtube.com/watch?v=ythVrkFyNmg
MAFL Looking like a great opportunity again at these prices. Oh for some spare cash!
Good point Timmit. I hadn’t considered that it might not be allowed.
All eyes on proactive for a possible interview in the next few days…
Fantastic results.
Seeing the progress made on Lagoa Salgada, Ideon and Golden Sun in black and white makes for great reading and hints at the hiddden value still to be released here.
I would have preferred JV to make clear a likely figure for the put option which we know to be about $9-12m (maybe take the PEA post tax valuation at 5% and say this is likely). As this would really underscore the upside potential for the company and share price.
Is this not a great quasi arb opportunity right now? Looking at the continuing operations balance sheet and adding the 12m retained from disposal, the remaining operation will have about 30m working capital.
If you bought the entire share capital at 163p a share right now you’d be paying a 74m market cap. Yes you’d break even on the 63m being returned but, assuming the remaining business traded for working capital which I think is very likely, then you’ve almost trebled your money on the remaining 11m that you hold.
Or put another way, you could buy 10k worth of shares in the market right now, get back about 8.5k and turn your remaining 1.5k into 4.5k. 10k to 13k in pretty short order.
Obviously this is subject to believing Tamdown is worth working capital. But otherwise, is there anything I’ve overlooked?
Even if you just take the £5m of cash/listed shares/ideon stake and discount the very high probability 9m payment by 50% to 4.5m and say the news today is worth £1m
That gets you to £10.5m
I would think it’s worth at least that right now when you weigh what it could be worth if the 9m does indeed arrive, a favourable outcome with the Ideon stake, a successful operation in Costa Rica and the 15% government stake still to be resolved.
Has to be worth 13m if one of those works out and 40m if all of them do.
Started a position here today straight after reading through the last few years of reports. Looks to me like their products are in demand wherever local economies are doing okay as evidenced by recent growth everywhere but China. You have to imagine that Chinese pig farming can’t remain unprofitable in perpetuity. The strength of the balance sheet and their ability to turn the dials of R&D spend up or down as necessary means that there is almost no threat of dilution or insolvency whilst we wait for all regions to be firing at once. Also it should always trade at a premium in p/e terms because of the intangible asset value and aforementioned balance sheet strength. I’d guess that 6/7m of profitability would equate to a 150m market cap quite comfortably. Happy to give them a few years to try and achieve that.
GLA
I just went through the last four years of reports as Bushveld was next on my research list. I have to say I was getting mightily excited, seems like they had finally got both plants ship shape and ready to to hit the medium term target of 5400 annual production, supply of iron ore is secure for the long term and demand for vanadium both for use in steel and batteries is very robust. Only problem looked like the balance sheet but with the new shareholding in Mustang there is soon to be easy access to liquid cash should they need it in a crisis. Add to that the pop in vanadium prices and it was looking like the profits were about reach escape velocity from the fixed cost base right into the tens of millions.
That was until the load shedding… that’s a big problem and one that is mostly out of their hands. I still think it’s a better than average bet that things will go well here especially with a management focussed on debt over dilution as often as possible, it’s just the risk of total loss is a bit too high.
Sounds like OPG might even be getting their coal for even less than the already depressed market price right now due to a motivated seller in the region.
Hi Quad,
I believe that we have the right but not the obligation to sell our 5% stake to Ascendant within a certain timeframe after the DFS is delivered. So I’m not even sure that we need the full project to be financed at that point, as long as Ascendant have enough liquidity to pay us 5% I think we can ask for our cash.
Obviously these things are complex so I could definitely be wrong about that.
https://youtu.be/8w8EoHGUarI
Suggests that we will have DFS by end of April. Which will be more than the PEA. Although unclear if this is more in value or minerals. It’s possible that mineral content could be higher but post tax NPV could still be lower due to increasing discount rate from 8% to 10.5%. My guess is they more or less cancel each other out which would leave the put option valued at about 9m GBP.
Good to hear that they already have multiple parties interested in funding the project in case we decide to hold our 5%.
Given that we already have 5m of liquid assets, a near certain 9m incoming within a matter of months and some interesting but hard to value things happening at Golden Sun… I’d say you’d be hard pushed to make a case that the equity value of MAFL right now is any less than about 10m.
I think it’s more than likely that coal/freight normalise at some point and tariff prices will be kept at a level which allows OPG to make a decent profit.
I reckon at some point in the next 5 years they make £10m and trade at a 6x or 7x multiple of those earnings.
That’s my guess, for whatever it’s worth.
Hi GMS,
One small amendment to that is that the cash payments are carried in the NAV at a discount (believed to be around 50%) to their value before they arrive. So only the other 50% is NAV accretive on arrival. I believe this would reduce your estimate by 13.5p.