Member Info for Hounddog10

Royal Mail probably does have about £4bn of net assets (although that could be on the high side). However, about £3bn of that is the surplus in the pension fund which is a rather funny asset. Yes, technically owned by the shareholders but rather tricky to access. Also there is about £400m of intangibles which normally would be stripped out to get to a tangible net asset value. Some of the land and property is probably worth more than book value if sold off for redevelopment but I think the big stuff already done and most of the land and property needed for the business.

The reason that GLS is likely to be worth more than the whole group is that the market is assuming that Royal Mail has negative value. Little in the way of tangible net assets and future losses which will need to be funded by GLS.

AZ. You would be a shareholder in both companies. So if GLS was to be spun off you would get shares in that (based on the number of shares you hold in current Royal Mail Group - so say for every 1 share in RMG you could get 1 share in spun off GLS (exchange ratio would be determined at the time of spin off)). You would also retain your existing shares in RMG (which would no longer include the Royal Mail business). It could work the other way - ie Royal Mail is the one spun out. Doesn’t matter to shareholders - it is the split that matters.

If they do list GLS abroad RMG would arrange a cost efficient trading facility for small investors who, being mainly UK, would probably want to sell. I am beginning to think (particularly as the holdco name has been changed) GLS will probably be UK listed, even though it is a bit odd to have this type of business UK listed when it has no UK operations. Alternatively, they might do GLS’s main listing abroad and have a secondary UK listing to help out UK shareholders.

As you may guess I think there is a strong chance the spin off will happen and probably explains the market’s muted reaction to dire results.

AZ. At the moment the Royal Mail side of the business is dragging down the overall valuation of the Group. GLS is worth more than the Group. So if GLS was to be spun off and separately listed (probably not in the UK, but say in Amsterdam) investors get a “clean” holding in GLS with good visibility on earnings. GLS is a stable growing business. Royal Mail needs huge transition, heavy capex and has difficult industrial relations. At the moment it has negative worth within the Group share price and there is the issue of it being cross funded in the future by GLS.

So spinning out (which is a normal corporate finance technique in these situations) should leave GLS on a much better multiple with a standalone Royal Mail which will be worth something. It is also likely to force the CWU’s hand in agreeing to modernisation (they clearly have in mind that with GLS in the Group it can fund Royal Mail losses). This perception should also help better rerate the Royal Mail side.

So in other words a clean shareholding (GLS) and a call option on the Royal Mail business (if it can sort itself out it could be worth a lot, but it cannot - to a shareholder - be worth less than nil).

I would be fairly sure they are already fairly advanced in working on the split (note the name change in the RNS).

Or maybe he is referring to SYM as the £10 million company. Probably more likely.

Well I think he uses trials and pipelines interchangeably. Previously they have talked about the 100 as trials. Your post caused me to relisten to the webinar. Just before talking about pipeline (towards the end of the webinar) he seems to refer to the Bimbo contract as “10 million ish”. It is rather mangled as he refers to “a company with sales of 10 million ish”. Not completely clear. Anyone got views?

In these webinars in recent years Laurier seems to have gone from being quite nebulous to very bullish and now self assured. The part that struck me was when he said Bimbo was just one conclusion out of the 100 trials. So presumably the other 99+ are still active opportunities.

It is very frustrating but then I think many companies do not give that type of financial detail for commercial reasons. One aspect of the contract that I have been wondering about is that it is “exclusive”. I read that as applying to both sides ie Bimbo won’t take another product (I don’t think there is one) and SYM will not sell to anyone else in USA, Canada and Mexico. Although Bimbo is a big existing customer of SYM and they would want to keep them happy that is a lot for SYM to give up (particularly as the bread market is quite fragmented). So I would assume the contract is substantial. Bimbo must also see a good deal of value to want to cut out competitors. However, I might be misreading the situation.

I don’t think we are in a close period - normally 30 days before full or interim results even though there is a trading update in a couple of weeks or so. It will be interesting to see what it says. They have said that they had a slow start to the year but things were picking up. Weak sterling will help as revenues mainly dollar related.

Management have a bunch of share options to exercise by end of year (expiry dates pushed back twice - grrr) so that might be how they are looking to buy in. Laurier already has a substantial stake in the company which probably is enough for him.

Troy. It may be better than that. Taking the £14m forecast for this year (out of interest where is that published and when was it made?) that is a £5m hike over 2021’s £9m of sales. Given that it probably assumes that new sales are made on average half way (or later) through the year and sales tend to be more or less recurring an extra £5m in 2023 is not unrealistic. So around £20m sales in total for 2023 possibly (if around about the £14m is met this year). So the extra £11m sales in 2023 over 2021 should be at a good (largely) d2p margin of say at least 50-60% - so £5-6m of extra gross profit and few extra costs outside that. Loss in 2021 was £1.4m but there were a number of one offs so previous year losses of under £0.5m more representative. So they could make £4-5m profit after tax (no tax as losses) in 2023. Stick that on a multiple of say 20-25 (not too absurd for a fast growing company) and that is a £80m - £125m market cap.

Another aspect is that this stock tends to spike periodically. The herd arrives from time to time before getting impatient and thundering off. I also wonder if the City has totally absorbed the implication of the Bimbo contract. I think post lockdown everyone is more focused on holidays and Wimbledon. Bimbo is a very big company - as someone else has pointed out on another board it made £3.8bn in sales in Q1 this year. It is also growing rapidly - greater than 10% per annum.

Also they do not have much need for the cash and if they do get strongly into profit then there is a prospect of a decent dividend - but that will probably only be in 2024.

Looking at Bimbo’s accounts the d2p agreement covers 80% of their sales by territory.

In its accounts SYM is required to disclose how much any individual customer contributes to sales if more than 10% of sales. In the past they have said there is one such customer and in 2020 * that customer represented £2.5m of sales. I have always believed that that customer was Grupo Bimbo to which d2w was being sold. Laurier has said many times that d2p is a much more valuable product than d2w. Obviously impossible to know if the physical volume of d2p sales will be the same, less or more than d2w but the sales agreement covers Bimbo’s major territories. So one might think that d2p sales to Bimbo could be at least that of d2w with a significant increment for being more valuable. Guesswork but perhaps an indication of numbers.

Gross margins for d2w are 40% plus and for d2p should be much higher. There is really no additional costs to SYM outside cost of goods. So the gross margin falls to the bottom line.

* In 2021 there were two customers over 10% and which contributed between them £2.5m of sales. No split given but the amount of d2w sold to Grupo Bimbo presumably fell. There is no explanation.

Yes - just call it biodegradable, something like “d2w - the plastic that biodegrades”. It is the oxo bit that makes it too complicated for the general public. Put that in small type somewhere.

Latpulldown. There is a disclosure on page 84 of the 2021 accounts that says that, based on the lending book at end 2021, for a 200bps parallel shift upwards of rates net interest income would only increase by £5.7m.

Then there are potential increased loan losses and inflation on the cost base…..

Does look as though something is up. Shareholders will be the last to know. Ever thus with SYM (and quite a few other AIM stocks).

I think they are trying their best to get to the half year without having announced any major d2p contract. In any event, we will know when they have got one because the share price will have started rising several days before it is announced.

Sorry missed it - last note. Final dividend same as last year - 0.1p.

Much as expected. Break even pre tax. Loss after tax. Would be helpful to understand better why the tax charge is so heavy.

Can see no mention of a final dividend. Incredibly they seem to have ignored explaining the position. Perhaps I missed it.

Personally I had hoped that the results would be better but they are still good (guidance updated). They do make clear (page 8) something that is important - pensions. At the last triennial valuation (31 Dec 2019) Lloyds DB pension fund was £7bn in deficit. By start of this year that had been brought down to £6bn. The agreement to eliminate the rest is for Lloyds to put in £800m fixed contributions per year and for every £1 going to shareholders (dividend or buyback) per year put in 30p to the pension fund (max £1.2m per year). This means putting in about £2bn per year (£800m + ((£1.4m div +£2m buyback) * 0.3)). For the arithmetically minded that means it will take 3 years until end 2024 to clear.

For a bank distributions to shareholders are, of course, governed by the regulatory capital that it has and generates (mainly profit). The payments to the pension fund come out of regulatory capital. In other words once Lloyds has cleared the pension deficit it should have £2bn more per year to distribute to shareholders (current amount is £3.4bn in dividend/buyback).

A new triennial valuation is to be done on 31 Dec 2022 and a new funding plan agreed by 31 March 2024. The valuation depends on actuarial assumptions which might move favourably and help close the deficit. So there is a possibility that deficit contributions to the pension fund will stop earlier - say by end 2023. Not too far away in market terms.

Katenip. NAV (which is now 56p) is only one measure of how a bank is valued. Banks should trade at around NAV in normal times but at the moment sentiment is not great towards the banks/market in general due to Ukraine war and inflation etc. So we are at a rather hefty discount to NAV. It would probably be worse if not for the (relatively) high dividend yield and buyback.

Actually, even better than that - 700,000 (slide 8) is what they are targeting for WK.

Eric also said that the new loan was essentially backup. That feels right but I suspect they will have to dip into it.

Seany123. Yes I also went back to Q1 2021 to wonder how the 25% drop was being calculated. Couldn’t work it out. Puzzling. Personally I think the base period is best seen as Q3 2021 where profit after tax was £1,600m. Could swing about £200m either up or down from that.