Member Info for HarChris

I have a question relating to the going concern statement - does it change what the company are legally allowed to do going forward? By that I mean would they have been legally allowed to actively dip into the cash pile (with acquisitions and buybacks) to such a degree that they would no longer be able to cover the costs of losing the dispute in its entirety if the going concern statement claimed they were able to cover it?

In other words could that new wording be simply to free them up to spend the cash as they wish?

And I will say again, I don't have the answer to that. The insiders in the company do however and they evidently believe the case holds no weight. In fact they are so sure that they've pushed this all the way to the point of being more or less do or die for the company.

It's a risk holding so many shares right now but one in which I'm happy to take, for others they may not see it at that way.

If there were clear answers to your questions, particularly number three, then we wouldn't be sat at 94p a share and you wouldn't be able to buy in so low.

That's the risk I'm afraid, there are unknowns and that's what is now offering up the chance to make 200, maybe 300 hundred percent from the company simply being correct in assuming they are in the right in regards to the dispute.

Whilst our case appears to be different to the other ones there does appear to be a pattern of behaviour from the DHSC across all the cases. I think in our example the contract was so big that the dhsc went down the more extreme case to force little old novacyt to back down and at least settle amicably for much less than the contract initially offered.

What they probably didn't expect was novacyt to stand their ground, file a defence of the claim and a counterclaim on top.

This does not seem like posturing to me.

Exactly, glad EXMEX spotted the going concern statement as it led to helpful discussion over the weekend.

And once again it's worth nothing it's a massive IF... everything we are privy to, DHSC continuing to purchase ad use our tests, the abingdon payout, the oxford nanopore payout etc

I think that's fair DRB, whilst it could be argued that a full loss of the dispute is priced in 12 months down the road, in the immediate term we would both agree that the share price would be absolutely decimated and would probably temporarily crash to something like 20p.

Which explains the current share price somewhat. Whilst the risk/reward is exceptional at this price the market is short term looking currently and sees the dispute as a binary play - 20p vs £2.50. I see it a little differently.

Thanks a lot DRB, that's very clear and makes perfect sense.

In other words, m&a aside, we are looking at £35-£45m cash after 3-6 months assuming a payment plan is in place if the absolute worst case scenario plays out - a nightmare in the short term but for shareholders wanting to at least salvage something from this investment, not an irreversible disaster.

Have it go any way in our favour and we'd be looking at a minimum, m&a aside, of £110m and possibly as high as £160m and be free of the enormous dispute shackle around our necks.

Yeah still happy holding at a £69m valuation.

What's changed is the confidence in the company to deliver free cash flow in 2022 and possibly into 2023 which therefore leads to the cash position potentially dropping enough to match the potential loss from the DHSC dispute.

We are talking the absolute worst case scenario here which the company has to allow for but we would still have a pot to play with, we'd have roughly £20m in tax rebate - we wouldn't however receive that immediately and so a payment plan would need to be in place to allow novacyt to continue operating as normal without being forced to raise funds.

A dire situation it would be but once it was all settled we would still have a stronger cash position than the likes of sourcebio and they are currently valued at £89m - sure it would take ages for sentiment to recover but the business would not necessarily be unrescuable.

For goodness sake Pi100, there is no typo in the actual filing, only in what someone on here copy and pasted.
So no, they obviously didn't get that rather important document signed off with the word 'doubt' omitted.

You really are trying so hard to find fault at every turn.

Well if they have all the time and resources why didn't they stick it out and win in all the other cases?

https://www.sharecast.com/news/news-and-announcements/oxford-nanopore-strikes-pound50m-settlement-over-uk-government-contract--9508074.html

https://www.sharecast.com/news/aim-bulletin/abingdon-health-reaches-pound63m-settlement-with-dhsc--10079964.html

Is it clear? It states that they wouldn't be able to settle immediately without a payment plan which suggests to me that they would need the circa £25m tax rebate to be repaid before being able to cover + some funds left aside in order to continue with working capital requirements - hence a payment plan to allow them to continue operating as normal and if not then some short term refinancing.

PI100, no not dead but certainly irreversibly damaged. I've always felt that way though, lose the dispute in full (highly doubt it) and they'll be in deep trouble.

Do you not think the going concern change frees them up to go down the m&a line?

The payment plan line makes me think that DRB's initial assessment is the closest to the mark. It assumes that working capital requirements are likely going to increase and after factoring in the final LTIP payment and IT IS final earn out milestone we may find ourselves left with roughly £85m, a sum comparable with the total repayment if the dispute was to go completely against us.

We would of course receive a considerable corp tax rebate and so would be able to repay the DHSC in full as long as a payment plan is in place that allows time for the rebate to reach our accounts - any m&a would make it more difficult to repay and may lead to a round of financing.

Jesus Christ, we were having a sensible discussion up until now about the reasons for the change in wording - one of which is the cash pile no longer being ringfenced for the dispute (as they see it likely dragging on and on) and m&a expected in the near future.

DRB earlier in the year you wrote something along these lines:

If we lose and have to pay it back we owe £105m (£129m - £24 withheld) less the £49m they owe us = £56m. We'll get a VAT rebate of £11m less the £8m that we held back in Q1 so £3m. We'll also get the corporation tax rebate from FY20 in full which is £15m. So worst case net is £56m - £3m - £15m = £38m cash to DHSC.

Why do you now make worst case as £86m? Well about £60m after corp tax rebate... still quite a discrepancy.

'Agreed HarChris but the weight of the uncertainty is pulling the SP down dramatically and if this uncertainty drags on for another year or 2 then.... Well I don't know.'

We do know, it's why we are valued at this price as it is. As you say all the while it drags on I imagine the share price will continue to price in the possibility of the dispute going against us and novacyt's financial future being up in the air. Anyone investing has to accept the possibility of waking up one day to the worst of news that would leave us, at least temporarily, at something ridiculous like 20p.

Having said that any positive operational progress will still be looked upon favourably and would give the much needed confidence that even if the dispute goes against us, the management are capable of taking this business forward with the £30m or whatever it is they end up with.

Sure, I think you've summed it up pretty perfectly DRB but for me it's still less of a concern (see what I did there) than it first appears.

It is most likely that like you say, we won't be cash positive this year as the transition to a post-covid future is more challenging than hoped (we know that already from H1 results) which forces DA to be proactive on the M&A front to avoid just fading into obscurity. All of that means that in the worst case scenario that we lost the dispute in full we won't immediately be able to pay the total amount in full.

Let's be honest DRB, with what we've seen this year if we lose the dispute in full then as investors we are pretty much f***** - we should still come out of it eventually with stronger fundamentals than the likes of sourcebio who are valued higher than us at is but it doesn't matter, sentiment would be shot to smithereens and anyone hoping to see us back to even £1.50 would be waiting many years, if ever.

Fortunately the odds of the dispute going fully against us must be minute, what with the DHSC continuing to use and approve the very same products at the heart of the dispute and whilst I think the odds are it will swing in our favour, even a neutral resolution would see a line drawn under this and be viewed very positively by the market.

DRB I think that's fair enough but we are not exactly burning through the cash, in a far worse than expected six month transition through 2022 the cash figure has dropped just £2m, less than 2% in total. It therefore suggests to me that the on going concern statement implies significant M&A activity planned over the next twelve months as well as expansion plans, i.e a much more aggressive approach that no longer preserves the cash.

I'm not convinced the difference is as dramatic as you seem to think DRB. Could it be that, having seen the dispute escalate in recent months management are now planning to push on with M&A regardless which could mean, further down the line, that novacyt can't guarantee having the cash to cover such a result?

I don't believe this has anything to do with the reason for the further fall, we're only talking 10% in the past 1-2 weeks against a rather dire economic backdrop.

Hi Airline boy... In my opinion yes, if they don't have clear aggressive expansion plans / m&a then they absolutely should announce a buyback at this price and take at least 10% of shares off the market - again we'd see a spike following a share buyback rns and we'd also see the share price begin to rise as they buy those 7 million+ shares but that would at least go some way towards protecting shareholders.

All in all they'd probably manage to buy 7.1 million shares for about £12m leaving the share price at say £1.70 ish and still £87m in the kitty.