The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Meanwhile on IM
https://www.telegraph.co.uk/news/2022/11/24/northern-ireland-councillor-larne-islandmagee-witch-trial/
Subsea 7 wins $300mln gas development contract in Trinidad today, their market cap increase on the news: £120mln. Harl wins likely ~£800mlm contract from UK govt, mkt cap increase so far: £25mlm.
It’s a very unfair comparison but I was reminded of the last minute Nayim goal against ****nal in the 1995 UEFA final…
https://youtu.be/gktEEs61q_E
A few days ago HARL’s share price traded as though approaching bankruptcy. Now HARL’s long-term future is literally guaranteed, they are going to experience enormous top line growth, its debts will shrink in size relative to its cash flow and can be beneficially restructured, management also has the space it needs to optimise the sale of its forgotten prize asset, the gas caverns, worth perhaps well over £50mln. I have zero evidence of this but I suspect they pulled a fast one to shake off Rivertsone Capital just before the contract news. If HARL were to actually to evolve into a shipbuilder with a steady flow of profitable contracts then we’d be talking about a market cap in the hundreds of millions or maybe even billions. That’s a loong way off and may well never happen. For now, the share price needs to reflect that of a govt backed ongoing enterprise with a healthy nine figure top line, the transformation of the asset value of it yards after the £77mln investment, and the gas caverns to boot. Anything below £50mln mkt cap is deep deep value, and would likely provoke interest from private buyers. I know most of us are already long so don’t expect one way traffic on the share price, but personably I will absolutely buy any dip that materialises here and I say all this as one of the biggest historical JW critics you will find. They needed something massive and man did they get it.
What an extraordinary turnaround in fortunes. To go from a situation that was (in my opinion) on the very edge of bankruptcy barring a miracle, to being the lead British player in a multi-billion pound contract is extremely unusual. And in that context, a 100%ish share price gain isn’t nearly sufficient. People need to realise that 6p was a price that implied the shipyards had no or maybe negative value (which personally I did not disagree with at the time). Where the share is trading now only rows the price back to where it was during their dire summer. It may take some time for new buyers to appear; research reports need to be written, distributed, and digested by a different crowd. Of course lots of question remain about the way HARL had been managed and their longer-term game plan, and I have to say I will be selling my shares when we eventually get near to fair value, but those are worries for another day. Well done you faith keepers, you deserved some reward.
For anyone who believes this contract and other opportunities create upside, I would guess that the next few hours will be the last best opportunity to buy (unless the wheels fall off HARL again further down the road). There are scores of traders who piled in over last few days expecting this news, they are cashing in and suppressing the SP. It won’t last long imo
Stokey, as the lending deal was apparently not finalised, and they will now be considered a much safer lending risk with a lot of govt money behind them, then yes, it should give HARL a much stronger negotiating position and credit profile.
Well done Astra Asset Management - £2/3 million warrants profit and counting in just a few days
Just don’t be surprised if the SP reaction to good news is a bit weird. There can’t be anyone left with an interest who isn’t already aware of the contract excitement and / or long. There could well be a time when those here for a quick profit are selling out and there’s not enough buyers to soak it all up until a new set of fundamental buyers appear, which could take some days or weeks. Volume and price action has already been explosive.
Hi - can someone with a reasonable knowledge of shipbuilding (eg Stokey etc, not a ramper) share with us what would likely be the realistic type and share of contract work that would go to HARL in the case of a Team Resolute win? I guess the use of the yards is a big part of it, but also what other construction / equipment use/ other work, goods or services is HARL itself going to be delivering? A lot of big numbers being banded around, but would be good to get a realistic understanding of HARL share of the profit pie beyond use of the real estate. Thank you
If you are triggered by pessimism, read no further!
The new lenders are a very different group to the old ones. Rivertsone were specialists in energy credit, Astra is a Mayfair hedge fund, staffed by former Deutsche Bank traders who specialise in asset backed and opportunistic lending. We don’t have much in the way of detail on the new loan yet, but I am imagining they have a first lien on all the assets (IM and yards). A few weeks ago I wrote that I was worried that everything could unravel quite suddenly given the heavy debt and cash burn and Riverstone’s need to protect their capital. Many of you quite fairly pushed back against that speculation. But it may be that this is exactly what happened with the ML review delay the final straw, and hence the need to plunge deeper into the borrowing shark pool to buy out Rivertsone. Their sudden disappearance doesn’t tally with any pervious statements, especially over the recent ‘approval’ of debt extension. Did HARL need full ownership of the yards to get more collateral for another, bigger debt facility? Questions worth considering. I know the official line is that all is well and this is cheaper better credit to prepare for an imminent big contract windfall. I do hope that is the case, but it doesn’t smell quite as straightforward as that to me. I fear that HARL’s greatest asset is, as far as shareholders are concerned, it’s biggest liability. As the existence of IM is allowing a massive debt pile to be secured against the balance sheet, and this looks in danger of transferring all the value to creditors and management. What are shareholders left with? The Hail Mary of a big margin big value contract in a notoriously unprofitable industry, that somehow translates into sustainable cash flow after massive debt burdens and central costs.
Either way the story of HARL is a fascinating one, there’s a Netflix show out there waiting to be made, whether it’s about the remarkable revival of British shipbuilding and Harland & Wolff, or about another dodgy corporate catastrophe remains to be seen.
What is odd here and maybe betokens some kind of desperation is that they lobbed out 2 million warrants just 9 days ago to extend the Riverstone credit line. Only to refinance the whole thing and 15 mln more warrants. They seem to have given up on value accreting to the shareholders, presumably that’s why they’re not that keen to buy any shares themselves. Also I wonder if the timing of this recent coordinated social media ramp os a little bit fishy. Yes I know I’m a cynic but HARL made me that way!
Cannacord says: Trading in line with FY23E expectations after a good H1, which provides 51% sales and operating profit cover relative to our forecasts. Sales was up 22% y/y to $358m (14% organic) with a 9% margin, which is in line. Cites robust demand across all end verticals supported by new contracts with new and existing customers, with EV growing 53% y/y and consumer electricals delivering 3.6% organic growth despite challenging markets. Trades on a CY23E P/E of 12x and EV/EBITDA of 7x, which is a 30% discount to sector average. If trading holds up, we expect to see upgrades to guidance later in the year and we think the shares look too cheap as a result
Let’s hope you’re right. I have to admit that my distrust of John Wood has reached an emotional level. When I read ‘we have been approved…to activate the accordion facility’ it certainly implies that, unusually, there was some sort of application requiring a subjective judgement by Riverstone. If I’d read that from almost any other CEO that’s what I’d think. But unfortunately my default assumption with JW is ‘he’s misleading us / casually lying’. Again.
I don’t want to get into an endless Barney about this, but some people are incapable of making a counter-argument without being rude aggressive and personal, which does make it hard not to riposte. Re accordion: generally speaking if they meet the pre-agreed terms and conditions then it has to be approved. So the “approval” is an acknowledgment that they have fulfilled the terms, not some fresh new commitment. Maybe they had some peculiar contract that said otherwise, I haven’t read it, but typically that is what an accordion agreement aka an incremental agreement is. I’m not a loan officer but I do work for a bank. I have 25 years experience of investing professionally in equities and credit. I make a lot of dumb mistakes like anyone, but be assured that I’m not just making this up as I go along! PS Thanks for the respectful disagreement Stokey.
Sorry mcadder, that just isn’t how a credit facility works. They have a facility of $70mln. Harl decide if and when to draw it, assuming they are solvent. Riverstone cannot change their mind without citing a breach of contract. Im not saying they would have if they could, I don’t know. But it’s not Riverstone driven.
I have seen a list of holders who have reduced their positions in HARL based on end of September publicly available filings. It’s not exhaustive, but maybe offers a few clues as to who has been soaking up the recent purchases…
- Lombard Odier (Swiss bank / private wealth manager) sold 3 million shares.
- Cenkos reduced their position by 500.000 shares (they still own 2.5mln), this could be their clients who they persuaded to participate in earlier share issue or maybe Cenkos underwrite some of the share issue themselves and are now offloading
- Killik: sold 500,000 but still v big holder with 21.5mln
- Tilley / Smith and Williamson (UK wealth managers): sold 300,000
- Equiniti: sold 235,000. Equiniti manage employee share plans so these are probably Harl employees selling down
- Then there are a bunch of other brokers / wealth managers like Brewin Dolphin who have between them sold about another 500,000
The biggest buyers over the same period are Hargreaves Lansdown, Winterflood, Halifax Share Dealing and Interactive Investors, all presumably executing on behalf of retail / private investors.
Not drawing any particular conclusions from all that but just wanted to share in case of interest.
Additionally I would note that drawing down the Riverstone credit facility is not necessarily a vote of confidence. Rivertsone have to honour the pre-agreed facility whether they like it or not. It triggers big additional fees (hundreds of thousands in value) on top of the interest to Riverstone. I also note that the warrant price has been set lower than what was previously disclosed. This all of course means that shareholders will have been further diluted. A key benefit to Riverstone of having these free warrants is that it will give them ultimate control if and when it comes to carving up the assets to pay off their debt.
Mcadder - I can see you get very triggered by opinions that disagree with your own. But seeing as you are determined to personalise things: if you want to see a long and woeful list or ‘wrong’ predictions I suggest that you read your own perma-bullish posting history. You’ve been calling it a buy with big news round the corner almost continuously since the share price was many many multiples higher than it is now. I feel sorry for anyone that followed your advice, they could probably sue you given that you sometimes pretend to be sharing non-public material news (which would be illegal), I’m surprised you still feel the confidence to proffer an opinion. I haven’t changed my mind: the debt will outpace the equity, revenues are not profits, the management is shareholder value destructive, there are no sinister shorters manipulating the price, and the company is essentially near worthless without an impending mega contract (a possibility) or an aggressive shareholder friendly restructuring (also a possibility). I hope I’m wrong, I’d like them to do better, and I maintain a small shareholding on the hope of something newsworthy that creates a better exit.
The way I look at it is (very roughly)…. The value attributed to the gas storage is maybe £75mln with a successful JR and the right political tailwinds, the total value of debt is going to be about £60mln, and the yards, as managed by John Wood, are therefore generously valued at minus £5mln. I used the recent blatant SP ramp to lighten up a little.