Member Info for Florence141414

You don’t often see a genuinely profitable business (Not just EBITDA profitable) that has a responsible management team with a good track record of returning money to shareholders trading around cash plus properties held for sale.

There may be companies available in the market with more upside potential but you’d be hard pressed to find anything with less risk than Volvere.

Agee’s Nom. I make the listed portfolio plus Ideon (at the private equity valuation) plus cash about 5.5m.

That means you’re getting golden sun, any future cash from the 5% PUT and the Hail Mary of 15% government stake in the price for free right now.

Getting towards no brainer territory as you won’t lose much even if none of those come off but you’ll double your money if just one comes off (the one that happens to be a contractual right!).

I emailed the company last week regarding the Supreme Court ruling. Just to make sure they have no exposure as there was one paragraph in the results that was slightly ambiguous (to my untrained eye anyway) as to whether they engaged in litigation funding. This was the email:

‘I just have a quick question regarding yesterday's supreme court ruling. I notice the following paragraph in your recent year end results....

Certain contingent fee arrangements are undertaken on a partially funded basis. In such arrangements, the funded portion of fees is not contingent on the successful outcome of the litigation and in these instances the revenue is recognised up to the amount of fees that the Group is entitled to bill for services performed to date based on contracted rates. The remaining consideration is variable and conditional on the successful resolution of the litigation. The variable consideration is recognised over the duration of the matter and included in revenue based on the expected amount recoverable only to the extent that it is highly probable that the amount recognised will not be subject to significant reversal when the uncertainty is resolved at that point in time.

Do you expect that these arrangements will be effected by yesterday's ruling?’

This Morning I received the following reply from the CFO which I found very helpful. So thought I’d share for the benefit of others:

‘Good morning

Further to your email below, the ruling by the Supreme Court will not have any impact on our business.

We do not have any funding agreements within the business that fall into the category covered by the ruling.

Many thanks

Kate’

That’s precisely why we should be concerned. Today’s ruling states that litigation funding must be a DBA. Any funding contract that is not currently structured as aDBA is invalid and unenforceable as of today.

It may be as simple as amending the contract to say DBA somewhere in there but I don’t know for sure.

Agreed.

He could easily run his mouth about the put option but I respect the fact that he’s keeping it in his pants until he has the official feasibility study figure from which to take the 5%.

For what it’s worth I believe it’s carried at around $2m but true value is likely to be $6-10m.

So we can add at least $4m to today’s £8.4m NAV.

Plus whatever we think a Hail Mary for the government’s 15% is worth!

It's the same facility that was used recently by the Indonesian government to fund a contract with SRT marine systems to provide $180m of maritime security.

I think it's a response to the recent realisation of just how vulnerable the UK (and the west in general) is to relying on hostile nations to supply us with natural resources. It seems prudent to support the development of mining in friendly countries.

As long as there’s nothing going on that we are unaware of then this is a crazy price IMO. Even at reduced margins they should make 6m in FY24. If they can grow those margins, increase their revenue or date I say both! Then today’s price will look very silly indeed.

I just went back and re read the RNS in which the put option was agreed. I realised that I’d completely overlooked a key point. I had been under the impression that Ascendant had raised $15m of liquidity. The implication being that this would be more or less enough to pay for the feasibility study but not enough to pay us our $8-10m should we claim our 5% immediately on completion of the feasibility study. Therefore if we asked for it but Ascendant couldn’t raise anymore capital then we’re out of luck.

However they actually raised $30m of liquidity, $15m directly from Sprott and $15m of secured loans from an affiliate of Sprott.

So once the FS study is completed then we can immediately ask for our 5%. Not only will Ascendant be contractually obliged to pay but we can also be reasonably certain that they will have the liquidity to do so.

I feel like this is a big revelation but it might also be the case that I’m the only idiot that missed it!

Surprised not to see buying here. Maybe unfortunate to be releasing results into this week’s market.

It’s worth 40m at least.

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?